At this stage in your real estate journey, you may have a property in mind. Whether you have nailed this space down as your ideal commercial location or are just looking ahead, you’re probably curious about the proper next steps.
One of the biggest questions people run into when initiating a lease is: Should I be doing this on my own? Your first instinct may be, why not? I have negotiated before, so I should be able to represent my own company’s interests against a landlord.
Of course, you may be able to arbitrate skillfully, but this is simply not the case for most tenants. When entering the world of commercial real estate (CRE), you don’t know what you don’t know. If you don’t know the full ins and outs of CRE, you could be missing out on vital savings and terms that you didn’t even know existed.
Luckily tenant reps are here to help. As CRE professionals, we are present in the marketplace, running deals 24/7. Our expertise has helped countless clients save money, time, and stress in the negotiation process.
Within this article, we have included vital points of market intelligence that will inform you how negotiating with representation can make a difference in the landscape of your lease. Not only will having a rep save you money, but it could be the defining factor in isolating the most favorable terms for your organization. Let's go through the points of why you should work with a rep during negotiations.
1. Landlords Have Reps- Why Shouldn’t You?
Real estate is typically a company’s second or third largest expense. So why would you want to take any risks? This is especially true if you are entering negotiations with sophisticated landlords. You must remember that they, like anyone else, are in business to make money.
They know that the best way to protect their interests is to come prepared with representation. Your landlord will be prepared with another party who will do anything within their power to increase their bottom line. Will you do the same?
It’s Never Just Negotiating with Your Landlord
You are never negotiating with just your landlord. Not only do they have their brokers, but they work extensively with savvy lawyers. Their counsel drafts the documents that they send to you for review.
If you are out of your element, you can quickly get lost in the verbiage of lawyers, brokers, and landlords- (oh my!)
Negotiating on your own against these forces can potentially set you up to fail.
Having an expert on your side will level the playing field. You will be keyed into certain rights that could be the defining factor in the landscape of your lease.
2. Cheating by Omission
Remember those leases written by lawyers? (And vetted extensively by landlord brokers?)
Well, often, they can exceed 80 pages. If you are not appropriately prepared there is a lot of room for you to be taken advantage of. This potential is doubled when you consider reading between the lines of those 80+ pages for what is not there.
You may think all of the appropriate clauses are included, but you could be missing out on certain critical rights you hadn’t even known to look for.
There are many terms to be aware of within your commercial leases. This includes nuances and clauses you may not have considered, including parking rights, signage, expansion rights, sublease clauses, renewal options, etc.
Written By Landlords For Landlords
These leases are written with the intent of defending the landlord’s interest. So, you have to play offense. Reviewing the terms outlined in the lease that they roll out is not enough. The language can make it appear that you are getting a good deal when the terms are unfavorable for you as a corporate tenant.
The biggest pitfall tenants fall into when trying to negotiate independently is only reading the terms the landlord includes, without even considering specific terms or clauses that may have been left out. On the other hand, tenant reps know exactly what to look for and can skillfully negotiate on your behalf to introduce better lease terms for you.
3. The Competition Factor
Tenant representatives know that the most prominent tool for negotiation is creating competition for your tenancy. They will survey the market for other viable properties and landlords hungry for reliable tenants.
The value of your tenancy cannot be overstated. If a landlord knows that you are fielding several more bids, they are more likely to fight for your business. The worst thing for landlords is for their buildings to have vacant spaces.
Therefore, they will be more likely to agree to terms that benefit you if they know there is a potential that you may leave them for another property.
Tenant reps are experts of drumming up competition and introducing this factor within negotiations. The leverage they generate gives you more room to assert your demands skillfully.
If you don’t know how to generate competition or scour the market with this intent, it may be wise for you to go to a representative.
4. Tools and Networks
If you go without representation, you miss out on other perks that ease the process of finding and acquiring properties. Tenant reps come equipped with software, programs, and networks that may not be available to you.
They may find specific properties or listings hidden behind paywalls or memberships. If you work outside of the real estate industry, it may be hard or expensive to get your hands on these things.
Tenant reps also forge critical relationships with other real estate professionals. They are connected to different companies, services, and landlords through years of running deals for corporate tenants. This deepens their knowledge and experience while also making them more prepared through a network of allies.
These relationships and programs could prove vital to finding you a suitable space. In negotiations, extra viable properties discovered through these means create more competition and leverage for you.
5. Negotiating Alone May Cost You
If you go at negotiations alone, the process could potentially seem to be easy. It may even be quick! That is because representatives read through leases with a fine-tooth comb. Their experience and market intelligence can weed out any terms that may cost you.
Tenant reps know that the initial lease is a draft. It is a starting point to begin negotiations. You have a lot of room to work with the lease’s outline and content after receiving their first drawn-up copy.
If you are working alone, it is more likely that you would accept the landlord’s lease within the initial few drafts. While appearing to save you time initially, it could gravely cost you in the long run in money and complications. Tenant reps initiate a back-and-forth negotiation process that could potentially take months. This time is often vital to landing you the lowest price and the most optimal terms for your business.
Other Representative Considerations
If you choose to work with a tenant rep, you could be making a decision that could greatly benefit your CRE portfolio. However, it is essential to remember that you still may need backup. You will still need attorneys on your side to review your leases as well. Therefore, having a lawyer on your side is extremely important.
It is highly advised to have legal counsel to review any drafts of your lease.
When you are dealing with your company’s second or third largest expense, you should never be alone. Essentially it may take a village to pin down the best terms for your lease. Real estate is a massive financial commitment, so you want to be prepared on every account.
Should I Negotiate On My Own?
Ok so now you know how much representation can influence your negotiations, you may have determined that tenant reps could be the right experts for you. They have the market intelligence and experience that is often required to secure favorable terms. Foregoing representation leaves you open to being taken advantage of so avoid this possibility by working with a real estate professional.
If you are ready to speak to a tenant rep, schedule a meeting today!