Seven leasing tips for potential tenants

GUEST OBSERVER

Leasing commercial office space can be a tricky business. You need to find office space that will suit the needs of your business and match the projected vision for your business growth, at the right price.

Leasing an office or commercial space is likely to be one of the most costly overheads for your business, so it’s crucial to secure the right property, and know what you’re doing in the process. This is, after all, a business transaction, so take your time and get to know some of the ‘lease speak’. Here are our 7 top tips for tenants when negotiating a commercial lease.

Tip 1

Never agree to an upwards only market review – this is known as a ‘ratchet review’ and it moves in one direction only - upwards.

Tip 2

Always ensure that you have flexibility in your market reviews. You can achieve this through a ‘Cap and Collar’ review whereby the rent can go up by a fixed amount, as much as it can go down by a fixed amount.

Tip 3

Never agree to a ‘make good clause’ in your lease until you know all of the details. A ‘make good cause’ refers to a tenant’s obligations at the end of a lease such as removing their fit-out and reinstating back to “Base Building.”

Always request a ‘make good scope’ from the landlord and ensure that your independent tenant rep has reviewed the scope so that you know the extent of your liabilities before you sign your lease.

Tip 4

Don’t sign your lease until you have had it independently reviewed by an independent tenant rep which may result in greater savings.

Tip 5

Always ensure that your tenant rep is independent, not a property company who could have business relationships with landlords. 

Tip 6

Don’t run out of time in your lease negotiations – some landlords play slowly on purpose to corner you. Start early and leave enough time so that you can walk away from the deal and leverage off other options.

Here are some timeframes

●     200Sqm to 500Sqm (9 Months before lease expiry)

●     1,000Sqm to 2,000Sqm (18 months before lease expiry)

●     Over 3,000Sqm (18 to 24 months before lease expiry)

Tip 7

Understand the real estate and financial needs of your landlord. A landlord will want to keep their Face Rent at market to maintain or increase the value of the property.

It makes sense to negotiate harder on incentives, annual increments, fit out etc, and a rent abatement to reduce the overall annual rent despite the market Face Rent – this keeps both parties happy.

Mark McGrath is Principal of Tenant Representation Services. He can be contacted here.