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.