Avoid leasing?s seven deadly sins; level field

by Jack Saltman

Too often executives approach their search for office space with the attitude of I’m good at what I do, therefore, I can make a great lease deal. Unfortunately, they overlook the obvious.

The building owner’s goal is to make a profit. The tenant’s goal is to make a great deal. The typical building leasing agent negotiates 30 to 50 lease transactions a year. The typical multi-building owner negotiates or is involved in hundreds of lease transactions a year. The typical tenant negotiates one lease transaction every three to five years.

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The playing field is not level. The owner has the advantage.

What you don’t know about leasing can be costly. Here is an outline of what I consider to be leasing’s seven deadly sins and how to avoid them:

1. Know your needs and develop them into a state of requirement. Separate your requirements into business needs and personal needs. The type of business may determine your location because of zoning or ease of customer access. A company’s image might require locating in a high-quality or highly visible building or location. Determine the amount you can afford to spend over the next three to five years on office space. Gauge expansion needs for the future. On the personal side, consider job security, location and image.

2. Avoid false confidence. Regardless of how good you are at what you do, understand your needs and educate yourself. Read local newspapers and local business publications. Learn the trends in your local office market. Understand the common terminology of the office building industry. Ask pointed, in-depth questions. These include questions on space measurement and hidden costs. Seek help, if necessary, from someone other than an employee or the owner.

3. Know who works for whom. The only thing you have in common with the owner and his staff is that you would like to lease space in their building, and they would like to lease it to you. That’s where it ends. Seek advice elsewhere.

4. Ask in-depth questions. Get the whole story. Rate and square footage mean nothing if you don’t ask enough questions. Ask about the common area factor ? the areas in the building of common use to all tenants. These usually include the building’s lobby, hallways, janitorial and electrical closets and bathrooms. The owner figures what percentage of the building this figure represents and adds it to the tenant’s square footage.

Ask about usable space or usable square feet, which is the amount of square feet within the confines of the space occupied by the tenant. Rentable or leaseable square feet is the amount of usable square feet plus your proportionate share of the common area factor. This is the amount of space you will be paying rent on. If one building has a common area factor of 10 percent, for instance, and another has a common area factor of 20 percent, for you to occupy 2,500 square feet of usable space in the 10 percent building, you must pay for 2,750 square feet. In the 20 percent building, you would have to pay for 3,000 square feet.

5. Free rent is usually an illusion. In most cases, free rent is a pay me now or pay me later proposition. Through annual rent increases, operating expense increases and other costs, it can become a dangerous game of rate manipulation. Avoid it.

6. Know when to employ a broker. When a building owner or leasing agent tells you they won’t work with brokers, or you have to compensate your broker yourself, beware! This usually translates to an unstated, “I’d rather deal directly with you, an inexperienced or uneducated prospect, so I can make a killing on this deal.” The only exception is during a lease renewal or space expansion transaction.

Most building owners understand that a high percentage of their leases will be brought to them by outside brokers. Some buildings are so desirable that the percentage might be very low. But even these buildings have made provisions in their budgets to pay a competitive brokerage fee.

In most markets, it is customary for the landlord to pay the broker’s commission even when the broker represents you, the tenant. If the commission is not paid to an outside broker, the owner usually pays that commission to himself. It should never affect the cost of doing business.

7. Remember, you are the customer. Negotiate hard. Your first impression is the right one. If the building is not well maintained when you first visit, it’s not going to get any better. If the receptionist is rude when you first call or visit, don’t expect her to be pleasant when you call with a problem.

Keep your eye out for hidden costs. If the leasing agent doesn’t volunteer information about hidden costs without being asked, leave. Don’t negotiate side deals. If it’s not written into the lease or the addendum, it never happened.

If the property manager is too busy to meet with you prior to signing a lease, he’ll probably be too busy to meet with you to resolve your problems once you’re a tenant.

You’ve got to live with people for three to five years. Make sure you’re compatible.Jack Saltman is a principal with the Tenant Advocate Institute based in Orlando, Fla. He is also a leasing specialist, a commercial real estate broker and author of “Office Space, A Tenant’s Guide to Profitable Leasing.” He can be reached at (800) 699-4901 or online at www.tenantadvocate.com.