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Why Negotiating Your New Commercial Lease Will Take Longer Than You Think

Author: Michael A. Faerber Date: 02/28/2017

Categories: Uncategorized

If you are opening a new business or looking for new space for your existing business, you need to understand how the leasing cycle works and give yourself enough time to allow all issues to be properly addressed. The process and timeline are different for every business, but even if you think you are making a relatively easy move, it is better to plan than to be surprised. That is even more true if you have a current lease but want time to shop for a new location before advising your landlord if you are staying or leaving.

The first step is finding the right leasing broker.  Leasing brokers can have experience in different locations and regions and also can be specialists in certain leasing situations (office, medical, retail, warehouse).  Depending upon the complexity of your needs and the market, you can spend months finding suitable space and then a few more months coming to final agreement on lease terms.  The leasing broker will help you work through the full process, from finding the right space to executing the lease. The broker will also help negotiate the business terms, which should then be documented in a letter of intent between the landlord and the tenant.

During the lease review and negotiation process you should be working with all of your professional consultants (attorney, accountant, architect and insurance agent) each of which will help you with different aspects.

Your attorney can help as early as refining terms in the letter of intent (LOI).  Based on the letter of intent, the landlord will present a full lease for consideration.  Your leasing attorney can help determine if the lease document complies with the business agreement reached in the LOI. Count on your attorney to propose revisions to the language and terms of the lease to make sure it works reasonably and sensibly for all parties involved.

For example, it is important to come to a clear understanding with the landlord as to who is responsible for the actual build out of the leased space, who is responsible for the build out cost (or will it be shared and how), and who is responsible to hire and manage the architect and contractors who will perform the construction work.

If you have the opportunity to hire or choose the architect, it is important that you find an architectural firm with experienced in the needs of your particular business.  Architectural and planning issues differ from industry to industry.  An architect knowledgeable about general office space may not understand the intricacies of a restaurant space or a medical office.  It can take significant time to find and hire an architect, work with the firm to develop suitable plans for submission, and await landlord approval. The architect can also help coordinate with the landlord and the contractor once the work is ready to commence.  Your architect will be involved throughout the build out to ensure that the contractor is complying with the approved plans and specifications.  And your architect should be able to help with space design and furniture plans and purchasing if necessary.

You should also consult with your accountant as you are coming to agreement with the landlord on the business terms of the lease.  Your accountant can help determine how rent allocation and the cost of furniture, fixtures and equipment should be treated by your company from a tax planning standpoint.  If you receive free rent or other considerations under the lease, your accountant can tell you how that may affect your tax situation.

You should also be in contact with your insurance agent as the lease terms are being reviewed.  The lease document will include insurance requirements. You will want to share the lease language with your insurance agent so that they can advise you if they have any suggested revisions to the language, let you know if they can meet the requirements of the insurance being requested by the landlord, and quote insurance premiums for the required insurance.

Part of the plan for the move of a company will also require consulting with an IT company to assure that your IT, telephone and other communication needs are being met.  They should be involved during the planning, build out and moving process to ensure that all wires, conduits, IT and communication jacks and equipment are properly planned, located and in good working order for your needs.

Finally, don’t want until the last moment to find the right moving company.  The movers’ knowledge can be integral to making certain you are sufficiently organized.  You will want to know that they can work with your timing requirements and that they can handle your move in an efficient and safe manner.

As you can see, there are a lot of moving parts when you sign a new commercial lease. Plan ahead and give yourself sufficient time so that you do not find yourself with a poorly planned lease deal and space.

Having represented parties in hundreds of commercial leasing transactions, I have come across many of these issues and scenarios for my clients and therefore, if your company is considering a move and would like to discuss the process further, and/or if you need recommendations for any professional consultants necessary during the lease and move process, please contact me at (240) 778-2305 or by e-mail at mfaerber@mcmillanmetro.com.