7 Tips for Negotiating a Better Office Lease
If your brokerage's cash flow is feeling the recession pinch, renegotiating your office rent can be a great way to boost your bottom line and lock in savings that will last even after the market fully recovers.
April 1, 2010
Jim Mullen, senior director at Kent Commercial Inc., a tenant representation firm in Reston, Va., offers these techniques for getting the best lease deals.
1. Allow plenty of time. Start the renewal process nine to 12 months before your lease term expires, or three months before your renewal option date. This gives you time to look at other buildings and do your homework. Then, if you don’t get the terms you want from your current landlord, you’ll be able to finalize a lease with another building.
2. Establish the prevailing market rental rate. Review recent leases at similar buildings for a good indication of what you might be able to negotiate. Also find out what your landlord has been offering to new tenants in your building—they may be getting better terms than you.
3. Know your building’s core factor. Find out what percentage of the building’s common areas are being added to your rental square footage. This percentage, known as the core factor, can range from 8 percent to 25 percent depending on how much shared space you use. Verify that you’re being charged the appropriate rate based on your usage.
4. Ask for tenant-improvement allowances. Negotiate for some funds to spruce up your space when you renew; the landlord would likely offer tenant improvements to a new occupant, so why not you? After all, you’re a proven tenant who presents less risk to the landlord than an unknown new lessee.
5. Limit personal guarantees. It’s common for building owners to ask tenants for personal guarantees or letters of credit to cover build-out costs and transactional costs, but you should limit them to the actual cost of the transaction (for example, the cost of rent for the term of your lease).
6. Call for a cap on operating costs. Negotiate a limit on increases of 5 percent to 8 percent annually on expenses such as janitorial services, which landlords can control.
7. Seek free perks. Need more storage or extra parking? Want more space on the pylon sign? Don’t be afraid to ask for perks or discounts.