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Be Sure to Ask Yourself These Questions

#1 – ARE YOU ALLOWING ENOUGH TIME ?
Building out the facility can take 30 – 60 days, but before you do that you need building permits which can take 1 – 12 weeks, but before you get those you need architectural drawings which can take 2 – 4 weeks, but before you get those you need to agree on terms with the Landlord, which can take 2 – 8 weeks depending on negotiations, but before you do that, you need to research the market to make sure you are looking at all available options, which can take 1 – 3 weeks, depending on how quickly the brokers and landlords respond to inquiries.
Unless existing facilities can be found which are set up adequately, 6 months is a reasonable time to give yourself to find new space. And new construction can easily take 9 months to a year; horror stories abound in the industry of it taking even longer.

#2 – ARE YOU NEGLECTING LONG-TERM PRIORITIES ?
Are you obtaining facilities and terms which will allow the company to expand, downsize or relocate as circumstances dictate? How likely is a new partner or merger? Be sure to ask your real estate attorney or Tenant Rep about Expansion Rights, Cancellation Clauses, flexible Renewal Options, and generous Assignment and Sublet rights!

#3 - IS THIS THE BEST YOU CAN DO?
Have you seen all the possible choices, and is the facility going to give you the best option in terms of operating efficiency and work-flow? Are you obtaining the best scenario in terms of facility attributes, access and space?
Did you know? – Many available properties are occupied and not “on” the market!! Driving the streets or checking on-line sources won’t do the entire job. Are you taking the time to contact all brokers and landlords to discover which occupied properties can be “made available”?

#4 – ARE YOU ADEQUATLY REPRESENTED ?
Is someone in your company an expert in commercial real estate? Will a lack of knowledge combined with time pressures cause unrepresented owners to make location decisions without being aware of ALL their choices, and make costly errors that cut into profits and increase financial exposure?
Of course, using the Landlord’s broker – friendly and honest as they are - means you have no representation at all!

#5 – ARE YOU UNDERESTIMATING THE CONDITION OF THE PREMISES ?
Are you taking the property “as is” and risking unexpected repair and replacement bills? Have building codes changed or has building’s infrastructure become broken or inadequate. Have you checked with your commercial broker or attorney about clauses to make sure the space is up to current building, fire, safety, zoning and ADA codes. And don’t forget the condition of the electrical, plumbing, heating and air-conditioning systems.

#6 – ARE YOU USING THE LANDLORD’S PROFESSIONALS ?
Are you hiring your own architects, general contractors and legal counsel to create and review the various space plans, specifications, costs, and documents? Otherwise, do you risk receiving inferior designs and/or fixtures that are less efficient and could eventually dramatically increase yearly operating costs?

#7 – DO YOU UNDERSTAND THE TRUE SPACE COSTS ?
Are you performing a true “apples to apples” analysis when comparing different facility choices. DO you have a complete understanding of the different lease types (Full Service, Gross, Semi-Gross, Net, Triple Net, etc.)? Are you adequately comparing the Landlord’s interior finish levels, Tenant Improvement (TI) contributions, “useable” Vs “leasable” space, and lease incentives?

#8 – ARE YOU PAYING TOO MUCH RENT, OR NOT GETTING ENOUGH LANDLORD INCENTIVES ?
Are you getting accurate, current market data to insure you don’t pay too high a rental rate or receive too few incentives? Are you maximizing benefits like free rent before and after lease commencement, discounted rent for various time periods, Landlord contributions to tenant’s build-out costs, landlord improvements to the space, limits on future rent increases, etc.?
Experience tells us a Landlord’s “flexibility” changes constantly depending upon current occupancy rates in both their building and the competition, lease length, tenant’s use, parking requirements, financial strength of tenant, etc. Negotiations are especially important with lease renewals, since Landlords are most competitive at inception, when the space was vacant.

#9 – DOES YOUR LEASE REFLECT PROPER DISASTER PLANNING ?
If a hurricane or fire destroys all or part of your premises, will you still be held to the Lease? Most leases allow Landlords unlimited time to rebuild the premises. Although rent may be abated during this period, the Tenant is NOT free to lease other space and get on with business.

#10 – DID YOU OBTAIN OUTSIDE INCENTIVES ?
Did you check into economic incentives from local government? (tax rebates, relocation assistance, payroll subsidies during employee training, infrastructure improvements and others) Many times the statutory incentives can be negotiated up very substantially and an inexperienced company may not receive millions of dollars that they could have gained through such incentives.

OTHER IMPORTANT QUESTIONS . . .

WRONG ZONING ?
Did you check to make sure zoning is correct? Don’t assume the zoning is suitable for its use. This is particularly a problem in medical and/or research and development companies, as different municipalities deal with these uses in entirely different, and often inadequate, ways.

IS LEASE COMMENCEMENT TIED TO BUILDING COMPLETION ?
If you encounter unexpected delays in the planning, permitting or construction stages of your facility, will the delay eat into your rent-free build-out period?

ARE YOU PERFORMING THE BUILD-OUT ?
What if unexpected problems, costs, or delays push things back – whose problem will it be: Landlord or Tenant ?

DID YOU LIMIT THE PERSONAL GUARANTY ?

IS THERE A LIMIT ON FUTURE FLEXIBILITY / COMPANY GROWTH ?
How fast is the company expected to grow? How likely is a new partner or merger? These situations and others prove the Tenant’s need for as much flexibility as possible. Are you inserting language into the lease which will allow a cancellation or modification of the lease under certain circumstances?

IS THERE A LIMIT ON FUTURE FLEXIBILITY / PRODUCT GROWTH ?
Will the company want to carry a new product line or install a new technology? Will a neighboring Tenant vacate (or move in) and impact the business? Is your “Use Clause” too restrictive as to what goods and services the Tenant will provide. Often, these clauses can prevent a Tenant from offering a very lucrative future product or service – think about what systems and products have not yet been invented!

MIGHT YOU BE CHOOSING THE WRONG LOCATION OR A TURNING MARKET ?
Do you understand the local market and demographics? Will an inferior location make it difficult to hire and retain the highest quality employees? Are you choosing a location in with lower rental rates that will mean less traffic, lower sales volumes and higher advertising costs?

IS THE SPACE MEASURED CORRECTLY ?
Did you verify the Landlord’s dimensions and figures to make sure you are not paying rent on “phantom” space?

IS THE SECURITY DEPOSIT NECESSARY ?
Landlord asks for Security Deposit as standard procedure, but do they require one?

IS YOUR SEARCH TO NARROW?
Have you limited your geographic area of interest too severely, leading to lost opportunities?

IS THE HOLD-OVER PENALTY TOO HIGH ?
Standard hold-over penalties in first draft lease agreements are typically far higher than necessary.

IS YOUR DESIGN THE BEST IT CAN BE FOR THE LONG RUN?
Are you making the best choices or focusing on the least initial cost rather than lifetime operating costs? Many times upgraded lighting, windows or insulation can make very dramatic improvements in employee productivity, operating costs and business security. Your professional should be able to discuss the latest in facility design, materials and technology. Also, if a natural catastrophe occurs and electric power is lost for an extended period of time and you are out of business, loosing clients, and income at a rapid rate, do you have ways to fix the problem? Proper planning and/or design can eliminate potential business disasters.

 



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