Negotiating Commercial Leases & Renewals For Dummies E-Book

Dale Willerton

• Herausgeber: John Wiley & Sons
• Kategorie: Ratgeber
• Sprache: Englisch

Seitenzahl: 598

Veröffentlichungsjahr: 2013

Beschreibung

Negotiate commercial leases and renewals like a pro

Renting space for businesses and navigating a commercial lease can be a daunting task for those without expertise, as errors or oversights can cost thousands of dollars. Thankfully, Negotiating Commercial Leases & Renewals For Dummies takes the mystery out of the commercial leasing process and offers expert tips and advice to help small business owners successfully negotiate their leases???without losing their cool, or their cash.

From one of the industry's most respected and experienced consultants, Negotiating Commercial Leases & Renewals For Dummies provides tenants with tips and advice on finding the best location and amenities for a business; understanding space needs and maximizing lease space; ensuring fair operating costs and keeping rent fees at a manageable level; minimizing the deposit requirement; mastering and executing negotiation strategies and tactics; and much more.

• Discover the rights and responsibilities associated with commercial leases
• Find out how much negotiability and flexibility you can expect in commercial leases and renewals
• Get to know which laws protect you and your business

Negotiating Commercial Leases For Dummies is essential reading for the more than 10 million business owners, entrepreneurs, retailers, restaurants, doctors, and franchise tenants who lease commercial, office, and retail space across North America.

Leseprobe

Negotiating Commercial Leases & Renewals For Dummies®

Published byJohn Wiley & Sons, Inc. 111 River St. Hoboken, NJ 07030-5774www.wiley.com

Copyright © 2013 by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Control Number: 2013933948

ISBN 978-1-118-47746-5 (pbk); ISBN 978-1-118-50252-5 (ePub); ISBN 978-1-118-50254-9 (eMobi); ISBN 978-1-118-50255-6 (ePDF)

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About the Authors

Dale Willerton is The Lease Coach. Before getting into commercial real estate, Dale owned many businesses that required him to be a tenant. His interest in real estate led him to work for commercial landlords, managing and leasing shopping malls, office properties, and strip plazas. In 1993, Dale realized it wasn’t landlords who needed help, it was tenants. He switched to the tenant’s side and became The Lease Coach, creating a new niche in the consulting industry. Within a few years, the demand for professional consulting services meant expanding into a much larger team. Dale partnered with Jeff Grandfield, who is responsible for much of The Lease Coach’s growth and success today.

Jeff Grandfield is a senior consultant with The Lease Coach. Jeff completed his honor’s B.A. degree in business administration with a designation in marketing from Wilfrid Laurier University. It was the challenge of the real estate industry and satisfaction of working with business owners of all types and sizes that drove Jeff to pursue a career in real estate and join The Lease Coach in 2005.

Dale, Jeff, and The Lease Coach team have successfully complete more than 1,200 consulting projects for tenants. They have conducted hundreds of seminars, workshops, and webinars. They frequently provide real estate training for franchisors and franchisees. Speaking at industry tradeshows and for healthcare organizations, they’ve helped tens of thousands of business owners and tenants. The Lease Coach has offices throughout the United States and Canada, exclusively representing tenants with one-on-one coaching and consulting, new and lease-renewal negotiations, site selection, lease document reviews, midterm rent reductions, lease assignments, building acquisitions, operating cost audits, and space measurements. The Lease Coach never accepts any fees from landlords and works with small and large, independent and franchise tenants. For a complimentary consultation or to inquire about having Dale and/or Jeff do a live speaking presentation, webinar or training at your next event, visit www.TheLeaseCoach.com, e-mail [email protected] or [email protected], or call 1-800-738-9202 (ext 1).

Dedication

This book is dedicated to the most important people in Dale’s and Jeff’s lives — their families: Linda, Alana, Jessie, Jean, Elaine, Louise, Lester, Janice, Brie and Vaughn, Miles, Terry, and Cory

Authors’ Acknowledgments

How does one say thank you when there are so many people to thank? Dale and Jeff want to acknowledge The Lease Coach team, including Pam, Lyda, and Rick, for their dedication, hard work, and loyalty. We also want to acknowledge the 1,200+ business owners, entrepreneurs, doctors, and tenants who have trusted their leases to The Lease Coach — and the many more to come. And to those thousands of business owners and tenants who attend our seminars, providing us with the opportunity to do what we love: help tenants.

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments at http://dummies.custhelp.com. For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax [phone].

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Negotiating Commercial Leases & Renewals For Dummies ®

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Table of Contents

Introduction

About This Book

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Part I: Leasing 101 for Tenants

Part II: Negotiating the Offer and Key Terms

Part III: Reviewing the Formal Lease Agreement and Dealing with the Landlord

Part IV: Negotiating Your Lease Renewal

Part V: The Part of Tens

Icons Used in This Book

Where to Go from Here

Part I: Leasing 101 for Tenants

Chapter 1: Yes, You Can Negotiate a Great Commercial Lease

Understanding What a Profitable Lease Agreement Is

Avoiding bad leases and knowing what makes them bad

Making a good lease a great lease

Negotiating a truly profitable lease agreement

Seeing yourself from the landlord’s perspective

Leasing 101 for Tenants

Negotiating the Offer and Key Terms

Reviewing the Formal Lease Agreement and Dealing with the Landlord

Negotiating Your Lease Renewal

The Part of Tens

Chapter 2: Starting the Leasing Process

Getting a Few Business Ducks in Order

Preparing a detailed business plan

Forming a corporation to become the tenant entity

Putting your financing in order and checking your credit score

Three business tools to have now

Preparing to Begin the Leasing Process

Reading and studying that will pay off

Visiting your competition or even going to work for them

Opening a New Business — But Where?

Mapping out your future location

Searching the Internet

Scouting out prospective locations with drivebys

Knowing what to look for

Allowing Time for the Leasing Process

Buying versus Leasing: Pros and Cons

Chapter 3: Choosing the Building Type that Best Suits Your Needs

Influences on Your Choice of Space

Analyzing and Comparing Building Types

Searching multiple sites before making a single call

Demographic factors that must be considered by area

Evaluating Various Building Types

Retail strip plazas

Enclosed shopping malls

Office buildings

Industrial properties and warehouses

Mixed use properties

Stand-alone buildings & pad sites

Other types of locations and properties

Preleasing Undeveloped Property

Chapter 4: Selecting the Most Profitable Site for Your Business

Figuring Out Where Your Business Will Thrive, Not Just Survive

Making the location you lease a priority

Weighing rental costs and potential sales

Looking at location variables

Distinguishing Sites That Make Sense for Your Business

Choosing between inline space, end caps, and stand-alone pad sites

Looking for a franchise site

Finding a healthcare location worthy of your practice

Searching for good office building space

Driving a little to save a lot

Chapter 5: Using Commercial Brokers and Real Estate Agents

Differentiating Between the Various Types of Brokers and Agents

Looking for the listing agent

Contacting an outside agent

Trying a tenant rep

Revealing the Real Estate Agent’s True Persona: Friend or Foe?

Uncovering myths about how real estate deals really work

How real estate agents are paid

Realizing How Commission-Splitting Can Negatively Affect the Tenant

Splitting a commission and the outside agent

Splitting a commission and the listing agent

Creating a commission on a renewal

Looking at Real Estate Agents from Different Perspectives

Using an agent, from the landlord’s perspective

Using an agent, from the agent’s perspective

Using an agent, from the tenant’s perspective

Franchising and Real Estate Agents

Using an agent, from the franchisor’s perspective

Measuring the pros and cons of using an agent for the franchise tenant

Asking the Agent for Disclosure Information

Understanding where the deposit goes

Revealing what the agent won’t or can’t do for the tenant

Avoiding dual agency representation or such agreements

Watching out for agent/tenant representation agreements

Controlling the actions of the agent

Chapter 6: Selecting the Right Professional to Help You, the Tenant

Understanding Why You May Need Some Professional Help

Saving money with a lower rental rate

Avoiding lease clause mistakes

Saving you time

Choosing Between Professionals

Looking for a lawyer

Using a real estate agent

Hiring a professional lease consultant

Exploring the Services a Lease Consultant Can Provide

Selecting your site

Walking you though lease negotiations

Reviewing lease documents

Orchestrating mid-term rent reductions and early lease terminations

Handling lease assignment or transfer negotiations (buying or selling a business)

Building acquisition negotiations

Finding peace of mind

Using a Checklist to Make Sure the Professional You Hire Can Do the Job

Part II: egotiating the Offer and Key Terms

Chapter 7: Presenting and Negotiating a Lease Proposal

Understanding the Players and Their Roles

Getting your game plan together

Putting players in the right positions during the leasing process

Understanding the role of the real estate agent in the leasing process

Getting the Landlord to Pursue You

Looking like a desirable tenant

Handling phone calls and personal meetings

Going easy on the e-mail

Creating Competition for Your Tenancy

Negotiating on multiple sites

Dealing with multiple offers simultaneously

Choosing the Proper Lease Agreement Format

Using a letter proposal

Considering a letter of intent (LOI)

Utilizing an offer to lease

Presenting the Offer to Lease

Creating a checklist of business terms

Putting the terms in writing

Formatting the offer

Having the proposal reviewed

Submitting the offer to lease

Making Counteroffers

Facing the fear of rejection from the landlord

Knowing when the landlord is bluffing

Timing the counteroffer for best results

Removing conditions

Avoiding Common Negotiating Errors

Knowing when to walk away

Submitting a business plan

Submitting financial information at the wrong time

Submitting a deposit with the offer to lease

Chapter 8: Negotiating the Business Terms of the Lease Deal

Choosing Between an Offer to Lease or Letter of Intent

Determining the Parties to the Lease Agreement

Checking up on the landlord

Stating the tenant’s name for the record

Establishing the Location to Be Leased

Naming the property on the lease document

Stating the unit number of the leased premises

Confirming the area or square footage of the premises

Knowing What Term or Length of Lease Is Best for Your Business

Stipulating the term or length of lease

Establishing the commencement and expiration date of the lease term

Working in a fixturing period

Asking for notice of vacant possession

Calculating the Base or Minimum Rent

Negotiating the base rent

Adding up the percentage rent

Stating the Operating Costs, TMI Charges, or Net Charges

Stating the operating costs in the offer to lease or LOI

Capping your operating costs

Using utilities

Including a Lease Renewal Option Clause

Negotiating for Tenant Incentives and Lease Inducements

Justifying a tenant allowance

Securing some free or abated rent

Dealing with Renovations and Construction

Clarifying landlord’s work to be done

Establishing the list of tenant’s work

Assigning or Transferring a Lease Agreement

Negotiating the Lease Deposit and Prepaid Rent

Establishing the lease deposit amount, if any, and why

Stating whether any rent must be prepaid

Anticipating a Personal Guaranty

Protecting Yourself with Conditions

Getting the Miscellaneous Points in Order and on Paper

Dating and Signing the Lease Agreement

Chapter 9: Negotiating the Rental Rate

Understanding the Importance of the Rent Figure

Exploring How Landlords Set Rental Rates

Looking at various economic factors

Revealing why all tenants don’t pay the same rent in the same property

Establishing where you are in the landlord’s lease up plans or cycle

Differentiating between asking rents and real rents

What the rental rate may not include

Determining What You Can Afford to Pay in Rent

Knowing the average

Being realistic about your rental budget

Examining what your competitors are paying in rent

Comparing what you get to what you pay for

Budgeting for annual base rent increases

Preparing to Negotiate the Biggest Deal of Your Life

1. Gather rental information

2. Compare rental rates

3. Work to get the lowest rental rate, not just a fair one

4. Ask yourself the right questions

5. Negotiate the base rent (minimum rent)

6. Get your game face on for the leasing process

7. Leverage your position by negotiating on multiple sites simultaneously

8. Make the offer or receive their proposal — don’t drop the ball

9. Verbalize the lease deal terms

10. Respond in writing

11. Send a counteroffer to lease

12. Don’t confuse compromising with negotiating

13. Trade something they want for something you want

14. Recognize red herrings and create your own

15. Walk away from the negotiating table

16. Use other locations as leverage

17. Avoid rookie negotiating mistakes

Negotiating the Operating Costs as a Rent

Looking at what you’re paying for

Why proportionate share counts

Capping the operating costs

Identifying your audit rights and keeping your landlord accountable

Communicating with the landlord about CAM concerns

Figuring Out and Negotiating Percentage Rent

Doing the math to determine your percentage rent

Negotiating an artificial break point versus a natural break point

Insider secrets that can lower your percentage rent

Identifying Other Rents

Renting signage space

Parking lot rental

Paying on the marketing fund

Chapter 10: Negotiating the Area (or Square Footage)

Determining Your Space Requirements

Looking down the road

Adjusting your business plan to the circumstances

Understanding why the physical shape of the space matters

Planning the layout of the space

Getting the Space You Pay For

Eliminating phantom space

Checking the measurement clause in the lease agreement

Rectifying measurement discrepancies

Understanding Measurement Standards

Industry standard measurement guidelines

Understanding measurement terminology

Negotiating Rights of First Refusal on More Space

Chapter 11: Choosing your Commencement Date and Dealing with Construction

Selecting the Best Commencement Date for Your Business

Starting your lease term going into your busy season

Having your lease term expire going into your slow season

Avoiding Problems with the Commencement Date

Anticipating delays in opening your business

Establishing the fixturing period

Removing conditions

Executing lease documents

Getting design and space plan approval

Pulling building permits

Zeroing in on zoning issues

Carving out time for contractor delays

Avoiding Paying Rent Before You Open

Examining the landlord’s expectations

Interpreting what the lease agreement says

Dealing with a Building Under Construction

Leasing different types of undeveloped space

Anticipating delays when the landlord is constructing a new property

Determining what remedies to take

Negotiating unexpected changes

Dodging Penalties and Fines for Not Opening by the Commencement Date

Getting Everything in Writing

Chapter 12: Dealing with Deposits

Defining the Security Deposit

Realizing why landlords try to collect security deposits

Covering yourself with proper wording in the deposit clause

Negotiating the Deposit Terms

Agreeing to the dollar value of the deposit

Knowing when to pay the deposit

Having the deposit applied to future rent

Avoiding security deposit pitfalls when renewing your lease

Avoiding paying any deposit

Getting Back Your Deposit

Asking for your deposit

Receiving your refund: Obstacles you may face

Getting your deposit back in difficult circumstances

Transferring the deposit if buying or selling the business

Part III: Veviewing the Formal Lease Agreement and Dealing with the Landlord

Chapter 13: Understanding and Negotiating the Rest of the Lease

Factoring in Visibility and Accessibility

Understanding the significance of signage

Paying attention to parking rights

Dealing with Default Clauses

Differentiating between default types

Defeating default clauses

Modifying Relocation and Termination Clauses

Getting moved to another location

Termination clauses imposed on tenants

Including your own early termination clause

Operating Costs and Additional Rent Clauses

Troubleshooting Miscellaneous Lease Clauses

Chapter 14: Finalizing the Formal Lease Agreement

Getting Your First Look at the Formal Lease

Making the offer conditional on the formal lease agreement

Asking for a copy of the formal lease agreement

Doing a preliminary review of the formal lease agreement

Understanding the Significance of Signing an Offer to Lease or LOI

Getting stuck with what’s in the offer to lease

Keeping details from falling through the cracks

Providing financial information to the landlord

Watching the calendar for timelines

Reviewing the Formal Lease Agreement

Taking a first look

Getting help from a lease consultant or lawyer

Responding and writing to the landlord or their real estate agent

Negotiating changes to the formal lease agreement

Getting a Copy of the Revised Formal Lease Agreement

Negotiating a few more rounds

Rescinding the deal

Removing tenant conditions

Executing the formal lease agreement

Paying the deposit and/or signing the personal guaranty

Moving forward

Chapter 15: Dealing with the Landlord

Understanding Different Landlord Types

Professional landlords

Institutional landlords

Investment fund landlords

Developers and flippers

Casual Landlords

Mom and pop landlords

Communicating Effectively During and After the Lease Negotiating Process

Standing in the Landlord’s Shoes: Seeing Yourself as a Prospective Tenant

Getting off on the right foot with the landlord

Grasping why your tenancy may be rejected

Dealing with Big Bad Landlords

Part IV: Negotiating Your Lease Renewal

Chapter 16: Starting the Lease-Renewal Process

Debunking Lease Renewal Myths

Myth #1: You must exercise your renewal option to extend your lease

Myth #2: Rental rates can only go up

Myth #3: Landlords won’t provide inducements on renewals

Myth #4: Next year will be better than last year

Knowing Who to Negotiate With

Studying the landlord’s website

Negotiating directly with the landlord

Facing off with the landlord’s property manager

Dealing with the landlord’s in-house real estate leasing rep

Dealing with the landlord’s listing real estate agent

Examining Whether to Use Your Renewal-Option clause or Not

Reading what the renewal-option clause says or does not say

Verifying that your renewal-option clause is assignable

Making sure your renewal-option clause is still valid

Pulling the renewal-option clause trigger: Pros and cons

Doing Site Selection Even if You Don’t Plan to Move

Checking out what the competition has done over the past five years

Kicking the tires on other locations for lease

Getting lease proposals on other sites to increase your renewal leverage

Talking with other tenants to gather valuable insights

Understanding How Far in Advance to Initiate the Renewal Process

Making first contact with the landlord’s property manager

Knowing what to say and what not to say

Inviting the landlord to send you a lease-renewal proposal

Reviewing the Physical Lease-Renewal Agreement

Negotiating to get your deposit back

Persuading the landlord to remove or reduce your personal guarantee

Getting more renewal option terms added to your lease agreement

Cleaning up your assignment clause

Tackling changes in signage, parking, and various verbal agreements

Dealing with outstanding tenancy issues now as part of the lease renewal

Counteroffering the Landlord’s Lease-Renewal Proposal

Making your pitch for a rent reduction

Playing one landlord against another

Walking away or waiting out a slow landlord

Putting your counteroffers in writing

Executing the lease-renewal agreement

Chapter 17: Negotiating Renewal-Option Clauses and How to Best Exercise Them

Including a Renewal-Option Clause in the Initial Offer to Lease or LOI

Determining how many years your lease-renewal term should be

Deciding what the rental rate should be for your renewal term

Presetting the rental rate for the renewal-option term in advance

Getting the renewal-option clause wording right

Additional Points to Negotiate if You Don’t Exercise Your Renewal Option

Getting the landlord to refund your lease deposit

Eliminating personal guaranties

Adding more renewal-option clauses

Deciding When Not to Exercise Your Lease Renewal-Option Clause

Lease renewal inducements to negotiate if you don’t exercise the option

Exercising the Renewal-Option Clause Properly

Discussing the renewal option with the landlord first

Knowing how far in advance to pull the renewal-option trigger

Understanding the legal mechanics of exercising the option clause

Going to Arbitration with the Landlord

Understanding the arbitration process

Doing your homework

Involving other professionals to help you

Estimating the costs and risks involved in arbitration

Understanding Month-to-Month Renewal Terms

Part V: The Part of Tens

Chapter 18: Ten Leasing Tips, Tactics, and Strategies for Tenants

Negotiate to Win

Negotiate All Lease Terms at Once

Don’t Telegraph Your Intentions or Give Buying Signals

Assume Nothing and Get It in Writing

Protect Yourself by Incorporating

Keep Your Success Quiet

Change the Day Your Rent Is Due

Creatively Build on Your Relationship with the Landlord

Ask the Property Manager or Landlord for a Favor

Prepare for Murphy’s Law

Get Professional Help with the Leasing Process

Chapter 19: Ten Questions to Ask the Landlord’s Real Estate Agent

Getting the Answers to Your Questions

Who Really Is the Landlord?

How Long Has the Landlord Owned the Property?

Is There Local Property Management?

What Is the Building’s History?

Who’s Doing the Leasing for the Property?

Who Were the Two Most Recent Tenants to Move In and When?

Who Were the Last Two Tenants to Move Out?

How Secure Are the Property’s Anchor Tenants?

Is the Property for Sale?

What Were the CAM Charges for Previous Years?

Chapter 20: Ten (or So) Warnings: What No One Ever Tells Tenants

It’s a Business, Not a Marriage

Not All Commercial Real Estate Agents Know What They’re Doing

Sketchy or Problematic Co-tenants

Shabby Property Maintenance

Absentee or Distant Landlords

Everything’s a Battle with Them

The Location You Like is Simply Unrealistic

Many Landlords Don’t Like Lawyers

You’re Making Decisions for the Wrong Reasons

Not All Landlords Are Litigious

It’s All Negotiable if You Know What You’re Doing

Glossary

Cheat Sheet

Introduction

Welcome to Negotiating Commercial Leases & Renewals For Dummies!

Over 10 million business owners, entrepreneurs, retailers, and healthcare and franchise tenants lease commercial, retail, and office space across North America. Prior to 1993, Dale worked for landlords, managing shopping centers and leasing their space. In 1993, Dale realized it wasn’t the landlord who needed his help — it was the tenant — and that’s when he became The Lease Coach. As a professional lease consultant, Dale brought on Jeff Grandfield as his partner, and both of your authors consult with and negotiate leases exclusively for tenants throughout North America.

Based on our two decades of experience in the commercial real estate industry, Dale and Jeff have developed keen instincts for which business concepts will have longevity and which are likely to struggle or fail, especially when we factor in their location and the lease deals being signed. Business owners need to start their business with the end in mind. That means looking forward now to be able to better predict the future.

In his book Outliers, Malcolm Gladwell talks about the 10,000 hours it takes to become a recognized expert or authority in your field. That is exactly what your authors have done, and its all been worth it. Working with business owners is extremely fulfilling. Dale and Jeff get to meet tenants all over North America as they travel and speak at conventions and tradeshows. A great business in a poor location at a high rental rate may never achieve its full potential, if it survives at all. Often it takes a professional lease consultant who is working for you, and not the landlord, to actually steer you in the right direction and get you the deal you need.

About This Book

This book and its stories and cases studies are a compilation of over 1,200 successful leasing projects that the authors have completed for tenants to date. You don’t have to read it from beginning to end; instead, if you’re in the middle of negotiations and need certain information right now, use the table of contents or index to turn right to the part of the book where that info is found and start reading. And you can keep returning to the book whenever you need a quick education on certain aspects of the leasing process. If you’re more the orderly type, you can certainly read straight through from beginning to end. You’ll find that the information is presented in a natural, logical way that leads you from one step of the process to the next.

One of the most popular seminar presentations The Lease Coach delivers is called “Thirteen Costly Mistakes Tenants Make Negotiating Commercial Leases and Renewals.” Readers of this book, like many of our seminar attendees, come to realize that they’ve already made many lease negotiating mistakes.

But don’t let that realization discourage you! This book will strengthen your negotiating position for all future dealings — and if you’re in business, there will be more chances to negotiate. This book opens your eyes to what tenants need to know.

Feel free to take out your highlighter when reading the book and use it profusely. If you’re like Dale, sticky notes come in handy too. This book will not only improve your negotiating skills as a tenant, but also raise your consciousness about commercial leasing.

Conventions Used in This Book

To help you navigate this book, we follow these conventions:

Boldface highlights key words in bulleted lists.

New terms and words are emphasized in italics.

Web addresses appear in monofont.

When this book was printed, some web addresses we mention may have broken across two lines of text. If that happened, rest assured that we didn’t include extra characters (such as hyphens) to indicate the break. If you want to visit a website, and the URL has been broken, just type exactly what you see in this book, as though the line break didn’t exist.

What You’re Not to Read

Sometimes we have to mention things that are interesting but aren’t crucial to your understanding of the topic at hand. Sidebars contain discussions of “side” topics that you may find useful but that aren’t necessary for you to get what we’re talking about. Read these or not, it’s up to you.

Sometimes we can’t help ourselves and go into specialized detail that you don’t have to read to get our main point. When this happens, we place a Technical Stuff icon to mark those paragraphs as skippable. Like this one.

Foolish Assumptions

Your authors at The Lease Coach have written this book with the assumption that you’re either about to open a business that requires space for lease or that you already own a business for which you’re leasing space. Sections of the book are written toward first-time tenants, whereas other areas are dedicated to existing or more experienced tenants who may have already negotiated a commercial lease or two.

We assume that our readers are from all industries and professions and are interested in leasing all types of commercial space, including strip plazas, office buildings, shopping center space, and even industrial space.

We also assume that you’re prepared to invest the time that’s required to negotiate thoroughly. That means doing your homework and spending the time to create competition for your tenancy rather than jumping at the first deal that falls into your lap.

Finally, we assume that you’re prepared to embrace the role of the negotiator or delegate the task to a professional lease consultant who’s more experienced and capable than yourself.

How This Book Is Organized

The leasing process is a just that — a process, not an event. The process has a predictable beginning, middle, and ending, whether you’re dealing on a brand new location or a lease renewal. Lease agreements sent to us from all across the United States and Canada are quite similar in structure and format. We try to present the business terms and lease clauses in the order they commonly appear in the lease agreement, from beginning to end. We’ve also organized the material into various sections in our attempt to cover every leasing scenario for every type of tenant. There is some intentional content overlap to make each section complete unto itself, because you may want to pop in and out of the book to find the critical information you need at the appropriate time in the leasing process.

Part I: Leasing 101 for Tenants

In Chapter 1, we explain why negotiating a great lease is important to the tenant’s financial well-being. Chapter 2 outlines the beginning of the leasing process. In Chapter 3, we explore the different types of properties for lease. Chapter 4 involves site selection and the proper method for conducting it. Using a real estate agent is dealt with in Chapter 5, and Chapter 6 outlines the professional assistance a tenant can hire.

Part II: Negotiating the Offer and Key Terms

Chapter 7 explores presenting and negotiating a lease proposal. In Chapter 8, we go over negotiation of the core business terms. Chapter 9 gets into negotiating the rental rate. In Chapter 10, we explain how area or square footage can affect your bottom line and how to measure your space. Chapter 11 deals with commencement dates and construction matters, and Chapter 12 includes negotiating the lease deposit and how to keep get it back when your lease term expires.

Part III: Reviewing the Formal Lease Agreement and Dealing with the Landlord

Chapter 13 is dedicated to understanding and negotiating the rest of the lease. In Chapter 14, we’re finalizing the formal lease agreement. In Chapter 15, we explore methods for dealing with landlords including strategy and practical negotiating applications and wisdom.

Part IV: Negotiating Your Lease Renewal

Chapter 16 is especially relevant for existing tenants facing a lease renewal negotiation. We go deeper into the lease-renewal process in Chapter 17, exploring various clauses in the lease agreement that need to be negotiated.

Part V: The Part of Tens

In Chapter 18, we include many of the tips, tactics, and strategies we’ve developed for tenants. Chapter 19 is a list of pertinent questions that tenants should ask the landlord’s real estate agent when going through the site-selection and lease-negotiation process. Finally, Chapter 20 alerts you to warnings and situations to avoid.

Icons Used in This Book

Icons are those little pictures you see in the margins throughout this book. They’re meant to draw your attention to key points that help you along the way. The following are the icons we use in this book and what they signify:

Some things are so important that they need to be set apart for emphasis. This icon — like a string tied around your finger — is a friendly reminder of stuff you should remember and use over the long haul.

When you see this icon in the margin, the paragraph next to it contains a valuable, practical tip about the lease-negotiation process.

This icon highlights things you want to avoid. An important part of achieving success is simply eliminating the mistakes; the information marked by this icon helps you do just that.

This icon highlights information that may be interesting if you want to really drill down to another level of technicality, but it can be safely skipped without jeopardizing your understanding of the topic at hand.

Where to Go from Here

Although we recommend reading everything in this book eventually, chances are you might want to jump in and then move around from one section to another. Every section stands alone and contains all the information you need for that segment of lease negotiation.

First-time tenants will get the information they need most by starting with Parts I and II. Existing tenants may benefit most by starting with Part IV.

When The Lease Coach is presenting a seminar or running our Leasing Bootcamp at a convention or tradeshow, we often survey the audience to determine why specific attendees are present. Invariably, some attendees are at the beginning of the leasing process, and others are at the end of it. Many are facing a lease-renewal negotiation. Chances are the readers of this book are also at different stages of the leasing process.

Our goal is for you to use as much of the content as you can to improve your negotiating position and the entire lease agreement. In a few years, you might be starting the process all over again — so keep this book handy for that eventuality.

Part I

Leasing 101 for Tenants

In this part . . .

Whether you’re looking for a place to open a new business or searching out a new location for your existing business, you’ve got questions about the process. The location you choose and the terms of your lease can have a major impact on whether your business flourishes or folds. In this part, we help you weigh all the factors that determine whether a location is right for you. We also explain the role a professional leasing agent or real estate agent will play in your success or failure during the negotiating process.

Chapter 1

Yes, You Can Negotiate a Great Commercial Lease

In This Chapter

Making the most of this book

Starting the commercial leasing process

Seeing the leasing process through the landlord’s eyes

The business terms of a commercial lease agreement, combined with the location, represent the platform that your business or company is built upon. Your business may be able to change its products, services, pricing, and marketing — but once you’ve signed a long-term lease commitment, you’ve got to make the location work. It’s do or die time. And the more money you spend building out your location, fixturing it, and stocking it with merchandise or inventory, the more capital you have invested in the success of that business.

If we could have one wish come true, it would be that business owners take the leasing process more seriously and realize that when the dust settles, they better have gotten it right, because profit is king. And it all starts with the location and lease agreement.

This book aims to spell out how you can successfully negotiate a great lease. But first, a few preliminaries.

Understanding What a Profitable Lease Agreement Is

A profitable lease agreement does two things:

It lets you the owner, operate a successful business, drawing a good salary from the company while servicing the bills, loans, and debts of the company. It gives you the privilege of employing people, and possibly allowing for future expansion, and thereby becoming truly rich and profitable at multiple levels.

It enables you to acquire equity and goodwill, possibly leading to selling the business, recouping the investor’s capital, and either retiring or allowing you to open another business.

The future salability of the business is often overlooked by business owners. The Lease Coach is often hired to work with entrepreneurs and business owners when buying or selling a business because a commercial lease agreement is involved.

Too often, The Lease Coach sees business owners not only struggle to take home a salary, but at the end of their 5- or 10-year lease term, they end up closing the business because no one wants to buy it. There was a story in Dale’s local newspaper about a family-run business that after 30 years simply closed its doors for retirement. No one wanted to buy the business, which was a shame. You can assume that the owner of the business didn’t get rich running his business or it would have had many suitors willing to buy it. If you spend all those years building a business and then you can’t sell it, you can’t get those years back.

Avoiding bad leases and knowing what makes them bad

A bad lease agreement may hold you back from making a good profit. A bad lease agreement could mean a bad or mediocre location. Dale and Jeff see this all the time. Great retailers, superb restaurateurs, exceptional service businesses in poor or mediocre locations do less business than they could in a better location. On the other hand, perhaps you picked a great location, but leased too many square feet (or too few), this can be a problem as well.

Combine a poor location with a high rental rate and you have a recipe for disaster. Your business will never succeed, let alone sell for a profit. Too many entrepreneurs are shopping for cheap space, but for the most part, you get what you pay for location-wise. This isn’t to downplay the need for skillful negotiation; you don’t want to pay too much for a good location — it’s all relative. In many of the larger plazas and enclosed malls, the property in general may be recognized as an excellent location, but getting stuck in a quiet area of the property may make your business less visible than you would like.

A lack of adequate parking for your customers can make for a bad lease. A multi-unit restaurant tenant The Lease Coach is currently working with for a midterm rent reduction has come to the unfortunate realization that their newest location is parking starved. Just when people are hungry and want to come to their restaurant, the parking lot is already full of vehicles. Customers come in to complain that they can’t find a parking space even close by — and many times cancel their reservation, go back to their cars, and drive away.

High rental rates — especially if combined with restrictive terms that make running your business difficult, if not impossible — can also hamper your future success.

Making a good lease a great lease

Brevity in a lease agreement is the enemy of most tenants. A good lease agreement is longer, not shorter. Never assume that what the lease doesn’t say will play out to your benefit later — it won’t. As the tenant, you want everything that could possibly be an issue addressed in your lease agreement.

Often it’s what’s missing from a lease agreement that really comes back to hurt the tenant.

For example, if a business owner wants to sell their business and assign their lease agreement to the buyer, the lease must have a comprehensive lease-assignment clause. However, landlords often include conditions controlling or potentially prohibiting the lease assignment (unless suitable wording is added for the tenant’s protection). Another example is that most lease agreements have a permitted use clause stipulating what products or services you can sell — or perhaps not sell. If you open a ladies clothing store and realize you also want to sell shoes, handbags, watches, and other accessories; you may not be able to sell them if your lease agreement specifically states that your permitted use is ladies clothing. Anticipating what items you may want to stock or sell will allow you to negotiate and add appropriate wording to the permitted use clause.

Making a good lease great requires anticipation of what may change in your industry, in the economy, and with future competitors, and then capturing all that into the lease agreement.

Making a good lease great means removing, deleting, or negotiating restrictive clauses in the lease agreement that will hold your company back. For some tenants, the renewal-option clause can be the difference between whether you get to stay in your location for several renewal terms. A demolition clause can force you to move out of the premises if the landlord wants to knock down the building and put up a different type of building. A relocation clause can force you into a costly relocation. All of these are scary scenarios requiring proper guidance from a professional lease consultant who is working for and being paid by you to protect and serve your needs — the tenant.

Negotiating a truly profitable lease agreement

A profitable lease agreement may include an exclusivity clause preventing your indirect competitors or neighboring tenants from selling your primary permitted use products or services. A profitable lease agreement would include a clause allowing you to operate the days and hours of your choosing. This can also mean the right to close or open early/late hours on days where it is unprofitable to remain open. One landlord wanted to require that an optometrist tenant (our client) open on Sundays. We negotiated so that the doctor was allowed to close on Sundays and holidays.

Try to think in terms of whether you’d buy this business based on its current lease agreement. As a prospective buyer, what parts of the lease agreement would you not like? Would the rent seem high? What about the operating costs? Would a shortage of parking or an undesirable neighboring tenant drive away both your potential customers and buyers of your business? Thinking about these issues beforehand can make all the difference to your decision-making process.

Seeing yourself from the landlord’s perspective

Business owners often fail to understand that a landlord doesn’t just want any tenant; they want the best tenant possible. Most landlords prefer to have national chains and companies with locations and offices across the country. One of the jewelry store chains The Lease Coach works with has several hundred stores in 19 different countries with a strong presence and track record for both success and for paying percentage rent. The jewelry chain started with corporate stores and once success was imminent, they began franchising. As a landlord, you can see why this type of jewelry store concept may be preferable to a mom and pop operation or independent tenant.

Whether you’re launching a new concept or copying a successful one is relevant to the landlord. Your business plan, your financial status, and your background are important to the landlord. If you’re a respected mechanic with years of experience, you may be successful running an auto repair business because that business is one you know. But if you’re a schoolteacher who suddenly receives a large inheritance, and can now quit your job and open the business you’ve always wanted — a personal fitness business, a cupcake shop, or a restaurant — the landlord may not be as certain about your future success.

Landlords love to lease space to national chains and franchisee tenants who have bought into large, proven franchise concepts. They really desire to lease space to healthcare tenants like dentists, doctors, and chiropractors. The doctors are professionals in their field who make for very stable and dependable rent paying long-term tenants.

If you know your tenancy or background isn’t likely to look attractive to a landlord, then take heed and get better prepared. If you know you and your concept will be well received, then you’re set. Some of the larger national landlords with hundreds of properties can likely size up any business concept or owner very quickly, so be prepared before you contact them. The first impression you make is a lasting one.

Leasing 101 for Tenants

Starting the leasing process in the right direction is critical if you want to achieve the best results. If you take the wrong path or veer off in the wrong direction, you may not achieve your goals or your business’s full potential. That’s how important the leasing process is. Errors, miscalculations, and bad advice at this stage can be difficult to fix later on.

To make the best leasing decisions, you need an inside and outside view of the different types of buildings or properties available (Chapter 3 can help you there). Then utilize a checklist to help you determine the pros and cons of different sites. The goal should be to lease the premises that will provide the most profit. On the surface, it seems that picking the best building would be advantageous; however, your particular business may not be able to afford or even justify paying the higher rents in more expensive properties. The last thing a tenant needs or wants is to find out that they’ve signed a long-term lease agreement in the wrong property. Chapter 4 can help you avoid this mistake.

During the initial leasing process, tenants invariably encounter and deal with commercial real estate brokers and their agents. We estimate that approximately 95 percent of all commercial real estate is listed with commercial brokers, so the chances of not dealing with one are slim indeed. Find out what the role of the real estate agent is, how to properly use a real estate agent, and how to conduct yourself in your dealings by studying the information in Chapter 5. Whether you’re negotiating on shopping mall space, an office tower, industrial space, or a retail plaza location, it is necessary to navigate carefully as you negotiate with commercial real estate agents.

When it comes to negotiating a new lease or lease renewal, turning to professionals can save you time, aggravation, and money. Professionals you may choose to work with include a real estate agent, lawyer, or professional lease consultant. Investigating and evaluating the right professional to help you (the topic of Chapter 6) can be the difference between success and failure.

Negotiating the Offer and Key Terms

If you’ve never negotiated a commercial lease before, chances are you won’t find this process easy or enjoyable. There’s a steep learning curve when it comes to presenting lease terms and negotiating an offer to lease or letter of intent. Even if you have experience with hard negotiating, chances are you’re not looking forward to locking horns with the landlord or their real estate agent — opponents who have experience on their side. This chapter explores ways to make you look and sound like a pro at the leasing table, even if you’re a rookie.

Negotiating the business terms is one of the most critical aspects of the lease-negotiating process. The business terms include the rental rate, length of lease, deposit, personal guaranty, and a dozen other details that may not have occurred to you.

The rental rate is one of the most focused-on business terms, perhaps rightly so because it is one of the biggest factors determining the success or failure of your business. We look at how the landlord determines the rental rates, how to determine what you can afford to pay, and how to negotiate the best rental rate. The rental rate goes beyond one simple number — it can include additional rent often called operating costs and perhaps percentage rent, which can dramatically increase the total payment you make each month.

Knowing how important the rental rate you pay is, and that this number is calculated on a per square foot basis, means that understanding how much space to rent and how to calculate this size is crucial.

We also explore choosing the right commencement date — how to position yourself to take possession of the premises once the lease agreement has been signed by both parties. Traditionally, a tenant would spend one to three months building out their space prior to opening to the public. A lot can go wrong during that time. Tenants must know how to hold the landlord accountable and how to ensure and protect their rights in advance when the unexpected occurs.

Deposits are a misunderstood component of the leasing process. Many tenants are misled into believing that deposits are mandatory and pushed to provide larger deposits than may really be required or justified.

Reviewing the Formal Lease Agreement and Dealing with the Landlord

This part of the book deals with the remainder of the lease agreement — beyond the initial offer and key business terms — and discusses how to properly review and finalize the formal lease agreement.

Finalizing the formal lease agreement is a negotiation unto itself. Yes, the business terms have been agreed to, but now a 30-50 page formal lease document is looming and requires consideration. Understanding and negotiating the formal lease agreement should be done with the help of a professional — ideally, a lease consultant. Many clauses in the formal lease agreement require negotiation, amendments, or deletion. Adding certain phrases and clauses to the lease agreement also helps protect the tenant. Smart business owners realize that with any contract, it’s better to be safe than sorry.

Dealing with the landlord and their representative, whether it’s the property manager or a commercial real estate agent, is definitely a challenge. There are many different types of landlords with different motivations for owning property. Some landlords are billion-dollar corporations, and other landlords are small and accessible to a tenant. Understanding your opponent before you get into the ring makes a big difference in the outcome of your lease negotiation.

Negotiating Your Lease Renewal

Approximately two million commercial lease-renewal transactions take place every year in North America. Whether you’re leasing space in a strip plaza, office building, shopping mall, or industrial warehouse, and whether you’re a retailer, wholesaler, service provider, or healthcare professional, you eventually have to face a lease-renewal negotiation with the landlord. Once again, starting with the end goal in mind and planning far enough in advance, this process becomes easier, as we explain in Chapter 16.

Most landlords push for a rent increase on a tenant’s lease renewal. This is normal and something you should anticipate. A lot can transpire in a 5- or 10-year lease term between when you moved in and when you need to negotiate your lease renewal. The lease-renewal negotiation is a familiar process to Dale and Jeff and gives these professional lease consultants an opportunity to re-address or fix a lot of the lease problems existing from the tenant’s initial deal.

This part of the book also covers whether it is necessary to exercise the lease-renewal option clause, the best process for assigning your lease agreement if you’re selling or buying a business, and how to prepare for the negotiating process. The difference between a rent increase or decrease on your lease renewal has lot to do with the homework you do and which professional helps you through the process.

The Lease Coach authors explain why many successful lease renewal negotiations include the return of the deposit to the tenant, removal of personal guaranties, and may also include leasing inducements and tenant incentives. Although you may not be able to pull this off on your own, experienced lease consultants like The Lease Coach specialize in negotiating lease-renewal rent reductions for all types of independent, franchise, healthcare, and office tenants. If you already own a business and desperately need a rent reduction on your lease renewal, pay special attention to this section.

The Part of Tens

In the Part of Tens portion of the book, we hope to throw some bite-sized nuggets your way that are both easy to understand and fun to discover. Turn to Chapter 18 for leasing tips, tactics, and strategies for tenants. In Chapter 19, we provide an easy checklist of ten questions to ask the landlord’s real estate agent on prospective locations.. We also include ten or so warnings for tenants to heed in Chapter 20; these warnings will help you avoid leasing pitfalls and confrontations when dealing with your landlord.

The authors of this book welcome your comments and questions by e-mail or phone (see “About the Authors”). If you have a great leasing story to share or even a nightmare experience, we want to hear it.

Chapter 2

Starting the Leasing Process

In This Chapter

Knowing what to do before you get started on the leasing process

Planning to make a great impression on landlords

Creating business plans and other tools for a successful lease negotiation

Scouting out locations for lease

We admire business owners and entrepreneurs who thoughtfully prepare themselves before getting started on the leasing process — preparation often separates the successful from the failures. The vast majority of tenants find a location and dial the real estate agent’s phone number to make a listing inquiry without first preparing for the call. After asking a few questions about the property, they casually reveal too much about themselves and often give the agent the upper hand.

In this chapter, we stress the importance of preparing yourself, taking your time, and making thoughtful and calculated moves. The leasing process is just that, a process — not a race. You must control your impulse to rush through it.

Getting a Few Business Ducks in Order

Why is it important to get your business ducks in a row before reaching out to landlords and their agents? Because everything you say and do will be judged and weighed. The landlord’s first impression of you and your business concept is critical. You may think to yourself, “But you told me the tenant is king, the tenant is the customer … and the customer is always right, right? So why is this first impression nonsense so important; if I pay the rent, they’re happy.”

Not so fast, innocent friend. Although vacancy rates may appear high across the country, and many spaces may be available for lease, there’s still competition for the best locations. We get many phone calls from tenants scratching their heads about being rejected or passed over by a landlord and losing their favorite site to another tenant. This sometimes happens because the landlord has come either to the conclusion that you weren’t prepared, or that the other prospective tenant was more prepared. Getting your business ducks in a row is good for a lot of reasons, including that it never hurts to impress upon the landlord that you do indeed know what you’re doing. The next sections explain how.

Preparing a detailed business plan

A good business plan serves many purposes. It can help you get organized, avoid mistakes, secure financing, and persuade a landlord that you’re a tenant worthy of leasing a great location. Often, the landlord won’t expect to see a business plan, nor will they ask if you’ve prepared one. But if you’re a startup concept, if you appear to be underfinanced, or if space is at a premium where you want to rent, a business plan can make the difference.

A detailed business plan shows the landlord that you’ve thought through every step of the business, including the real estate. One of Dale’s clients just sent him a great-looking floor plan of their new healthcare office. It was particularly impressive that most of the tenants who take the time to design a space plan do so in 2D. This tenant’s space plan was in 3D, and it really popped.

But having a business plan isn’t enough. You need to do it right. Here are a few mistakes in your business plan that can hurt you and why.

Don’t put the name of the plaza or property where you want to lease on your business plan if you’re still negotiating the lease terms. This screams that you’ve made an emotional commitment to that property, and the landlord may recognize how much you want the space and try to charge you a higher rental rate or provide fewer inducements.

Don’t use the exact dimensions of the property’s Commercial Retail Unit (CRU) for your space plan. This will again show that you have set your sights on leasing that location only. A draft space plan should initially be based on a general size CRU that you require. If you need 3,600 square feet, use a dimension sample of 100 feet deep by 36 feet wide to get started and see if all the moving parts fit into that area. The design can be refined and detailed later when you’ve selected a specific unit to lease.

Don’t include your financials. You may have to eventually show some detailed financials. Some landlords want to know the source of the money for your venture But don’t just lay it out in your business plan for the real estate agent, property manager, and landlord to see. The financial segment of your business plan should be separate and held back. If they think you’re undercapitalized or underfinanced, you may not get past first base.

Forming a corporation to become the tenant entity

A businessperson only has a couple choices about the tenant entity in any lease agreement. Knowing up front what you plan to do is vital:

Corporations and Limited Liability Companies (LLCs): Forming a corporation or LLC to become the tenant entity is almost always the best choice for a business owner. Corporation and LLCs can limit your personal liability in the event you can’t pay the rent or go into some other form of default. Remember, that these things can happen through no fault of your own.

Personal name: Too many entrepreneurs allow their personal name to creep onto the offer to lease page. All landlords want business owners to list their personal name as tenant because that’s the equivalent of giving a personal guaranty and gives the landlord more security. Having a corporation or LLC already formed and ready allows you to put that entity forward officially and technically as the tenant during the lease documentation process.

Professional corporations: Doctor and healthcare tenants often list their professional corporation as the tenant entity. This is both fine and standard, although some doctors form holding companies to become the tenant entity.

Co-tenancies: An example would be where three partners all list their personal names on the lease agreement as co-tenants. John, Mary, and Ben all sign the lease agreement, and all three are all responsible (both jointly and severally) for performance of the lease terms. In most cases it is better for these partners to all own shares in the tenant corporation. Their limited liability provides an easier exit strategy should one partner want to leave the business.

Putting your financing in order and checking your credit score