Feature Commercial Leasing By Stephen A. Cross, CCIM
How to Save Up to 36%
on Your Next Lease
eal estate is generally a of improving the space have already
company’s second larg- been incurred. New carpet and paint
est operating expense, are typical renovations landlords
after employee salaries expect to make. Irrespective of the
and benefits. It’s also improvements required to make a
the area where most business owners space suitable for your business, insist
overspend, generally without being that the space be delivered in a turn-
aware of how much they could have key condition ... and at no charge
saved to lease the same space, in the to you.
same condition, and in the same build- contRollable expenses. 5. cReate a papeR tRail. When
ing. The following discussion focuses Insist that the landlord take reason- it’s time to make a proposal, submit
on some of the variables common to able steps to keep operating expenses terms and conditions in writing. Include
most commercial leases. Taken togeth- as low as possible, after all, these costs a reasonable acceptance date after which
er, they can serve to significantly lower are generally passed on to the tenants. the proposal automatically expires, and
the effective rental rate … reducing the A 3% cap on controllable expenses insist on written responses.
overall costs of occupancy. will help ensure the landlord is 6. mums the woRd. Never dis-
Rental Rate. Advertised rates diligent. cuss your budget, circumstances of your
are typically 5% to 15% higher than base YeaR. If the lease rate in- business, or other buildings under con-
the landlord will accept; as in any high- cludes the operating expenses of a sideration with the landlord’s agents.
stakes negotiation, landlords seldom building (property taxes, casualty Unwitting disclosures will likely create
start with their bottom line price. When insurance, common area maintenance, leverage for the landlord and be used
discussing price with listing agents, utilities, janitorial, and the like), insist against you at the bargaining table.
always refer to the landlord’s “asking” on a Base year as far into the future as 7. Re-think doing it YouR-
rate; inferring the price is negotiable. possible; and never accept the preced- selF. The leasing of commercial space
escalations. Minimize rate ing year as the Base year. is a time-consuming and complex pro-
escalations by fixing the increase to a cess, consisting of many interrelated
nominal amount and/or postponing variables. Whether you overpay, or
them as long as possible. 7 essential negotiating tips
are able to negotiate below-market
FRee (abated) Rent. Negotiate 1. plan ahead. Make time your
terms, depends on your preparation
one month of free rent for every year of ally by starting the search for space
and understanding of the nuances
the transaction (an 8.33% discount), and six to nine months prior to the date it
of the entire process. Landlords have
never agree to amortize “free” rent over is needed.
advisors to protect their interests … so
the lease term. If no incentives come 2. eveRYthing is negotia-
with a longer term, opt for the shortest ble. Leasing agents and property man-
summaRY. Every dollar saved
term possible. agers use terms like “standard” and
in unnecessary operating expenses is
Renewal options. Accomplish “typical” when referring to rates and
a dollar that can be shared with em-
longer lease terms through renewal op- concessions. In commercial real estate,
ployees, used to purchase equipment,
tions which provide flexibility; and an every term and condition is negotiable
or distributed to stockholders. Because
opportunity to negotiate additional free - nothing is standard.
landlords are the most accommodat-
rent and other concessions throughout 3. comps aRe non-existent.
ing before you become a tenant, make
your occupancy. Also, make every Because information about completed
certain to recognize and capitalize on
effort to avoid option rates tied to the leases (“comps”) is generally propri-
every possible leasing concession; and
then-prevailing market rate. Why? etary, there are no databases available
anticipate and negotiate protections
Because market rates are subjective to verify comparable transactions.
within the four corners of the lease.
opinions of value, and do not reflect 4. not all landloRds need
Remember, for the fully-informed
the incentives or inducements often to lease space. The greatest
business owner, facility executive or
required to make arms-length deals. concessions will likely come from
corporate decision-maker, it’s always a
As a result, this number will always be landlords who have the most urgent
needs. Target landlords with a history tenant’s market. SAN
high, favoring the landlord.
tenant impRovements. of granting generous inducements, Stephen Cross owns CROSS Commercial
On new space, tenant improvement looking to sell, or those with high Realty Advisors and counsels business own-
vacancy rates; and make every effort ers, facility executives and corporate decision-
(“TI”) allowances can vary widely, and makers on ways to acquire or lease property
generally increase with longer lease to determine if vacancies are antici- at the lowest cost and most favorable terms.
terms. On second generation (previ- pated. Don’t be afraid to ask probing He may be reached at (480) 998-7998 or steve@
ously occupied) space, the major costs questions. crossrealty.com.