Key Takeaways: A Landlord and Tenant Advocate’s Mindsets

Landlord Advocates: When it comes to how much protection a landlord needs for both a tenant’s security deposit and the type of GGG it requires, landlords need to channel the one and only Zen Master – yes you got that right, 13 time NBA champion Phil Jackson – and ask yourself the Zen-like question “How much is enough?” when it comes to the level of protection that a landlord needs.

Tenant Advocates: Conversely, if on the tenant’s side of the table, one should make it their mantra to channel rock legend Pete Townshend’s hit song “A Little is Enough” when it comes to deciding upon (1) how much security deposit is the tenant willing to agree to give to its a landlord; and (2) how many or little steroid laced legal and business points will the tenant agree to in the GGG that the principals of a corporate tenant ultimately sign!

Landlord Advocates: Conduct your due diligence and examine the financial strength and historical strength of the prospective tenant, while simultaneously digesting the “tenant concession cocktail” the landlord is being served by a tenant’s broker.

Tenant Advocates: Give the future landlord as much “financial and historical comfort” in its quest to have the required security deposit as small as possible and the dose of “legal and business steroids” a landlord may inject into its GGG be as minimal as possible.

Conclusion: The greater the concessions requested, the shorter the lease term to recapture the concessions granted, the higher the risks to landlord and the worse the financials and track record of the tenant … the larger the S/D and the greater the dose of “legal and business steroids” a landlord may inject into its GGG.

Sports, rock and other visual analogies aside, by way of example, on a 10 year, 10,000 RSF office lease renting at $60 PSF with a $60 PSF work letter (i.e., $600,000), 6 month rent concession (i.e. $300,000) and real estate brokers on both sides of the transaction (i.e., $200,000 tenant broker and $100,000 landlord broker override), depending on whose calculator you are using, a landlord within the first 6 to 12 months from lease execution very well will be spending roughly $1,200,000! We’ll come back to this example later, but in the interim, how in fact the landlord underwrites its risk will go a long way in determining whether it will require a 3, 6, 9 or even 12 month security deposit from the tenant.