Now That You Bring That Up!

Now That You Bring That Up

Just when you thought the deal was done, the landlord comes up with some twist you never considered. Worse than that, it was an issue you thought you had discussed prior to agreeing to the deal, but the landlord just shrugged his shoulders and acted like you just got off the spaceship from Mars. All this and more could be avoided if you or your broker drafted a more complete proposal. Always specifically outline all the issues that are critical to you.

Why make a written proposal? At the least, a broker should provide you with a paper trail of the discussions that went on between you and the landlord (or each other's agents) which specifically outline all deal points requested by either parties and further agreed to by both sides. This is important for several reasons, which include:

Keeping everyone to his or her word.
Providing a better foundation for lease negotiations.
Making sure you get what you expected.

A written proposal and a written follow-up on the discussions help to keep everyone on task. Don't ever allow a broker to go to leases without a written agreement, no matter how big or small your deal is.

Question: How complete should a proposal be?

Answer: Very complete.

Written proposals to lease space can vary in their complexity and depth. In many cases we find offers only include:

Name of tenant.
Address of building.
Size of premises.
Length of term.
Base Rent.
Maybe an option.
Commission—your broker wouldn't forget that.
Expiration date of offer.

Here’s a point of interest for you Roberts Rules people: If that is all you include in your proposal, your attorney is going to have a hell of a time trying to negotiate modifications to the landlord's lease on your behalf. Put everything you want on the table before you agree to agree.

Now we’re on to the meat and potatoes. Of the hundreds of proposals we have reviewed over the years, the ones that resulted in the most favorable transactions for the tenant usually contained between 25-40 deal points. Furthermore, each deal point was drafted to read like the lease language the attorney eventually negotiated into the lease. Here are some example dos and don'ts:

State your firm’s and the landlord's full name. Remember, this is a legal document.
Ask for the full legal address of the building and the exact size. You don't want the landlord shrinking the building on you and charging you for a percent of a smaller piece. Yes, that does happen.
Ask how the space is measured and make sure that number is fixed for the term.
State the term both in months and by date, and ensure that this will be confirmed by an amendment to lease upon commencement.

You should also state the following and make sure to accompany these points with appropriate language:

Use: Be as general as possible.
Load factor: How much of the building is common area?
Occupancy: When can you occupy the space? Can you enter early to install cabling? hat about installing furniture systems?
Commencement: When will rent actually start?
Security deposit: How is the security deposit being held? Does it bear interest? Can you give the landlord an LC or CD instead of a check?
Rental concessions: do you get free rent? Moving costs? Other allowances?
Operating expenses: These are vital. If you aren't specific, you are giving the landlord a chance to write a blank check.
Tenant improvements: A work letter should specify improvements to be done, but what happens if you accept the premises in "as is" condition? What is the landlord's reasonable obligation? Make sure to settle this with specifics.
Renewal option: Spell out exactly how the option will be exercised and how the rate will be determined.
Options to expand: Nail down the how and the when.
Option to downsize: Yes, you should consider that option.
Right to cancel: Another biggie.
Subleasing/ assignment: Landlords like to say, "Use our standard language.”
Non- disturbance: While this is tough to get for a small tenant, it’s worth a request.
Building services: specify what the building will provide in services such as HVAC, power, telephone wiring (in California, be aware of M.P.O.E. regulations).
HVAC after hour charges: Ask what these are.
Toxic waste/ Americans with Disabilities Act: How would you like to find out it cost you money after you move in to comply?
Parking: What do you get? If you are charged, do you have to pay for all your spaces, even if you don't use them?
Signage: Where are you allowed to have signage? What can it look like? Who pays?
Amenities: What does the building provide such as security service? Food service? Shopping? Airport service? If you ask and they agree it's provided, what happens if they eliminate an amenity that was a major enticement for you to sign the lease?
Financials: What does a landlord require? Who will read them?
Lease: What form are they using (see earlier tip re: types of leases)? Ask for a copy to have your attorney begin reviewing it.
Warranty: Is the building in escrow? Are major improvements on the drawing board?

Boy, do I hate it when we write a 32-38 point proposal and the broker responds with their standard boiler plate, which covers only the 8-10 points listed at the beginning of this chapter. Nail down all relevant specifics.

Keeping everyone to his or her word.

Providing a better foundation for lease negotiations.

Making sure you get what you expected.

Answer: Very complete.

Name of tenant.

Address of building.

Size of premises.

Length of term.

Base Rent.

Maybe an option.

Commission—your broker wouldn't forget that.

Expiration date of offer.

State your firm’s and the landlord's full name. Remember, this is a legal document.

Ask for the full legal address of the building and the exact size. You don't want the landlord shrinking the building on you and charging you for a percent of a smaller piece. Yes, that does happen.

Ask how the space is measured and make sure that number is fixed for the term.

State the term both in months and by date, and ensure that this will be confirmed by an amendment to lease upon commencement.

Use: Be as general as possible.

Load factor: How much of the building is common area?

Occupancy: When can you occupy the space? Can you enter early to install cabling? hat about installing furniture systems?

Commencement: When will rent actually start?

Security deposit: How is the security deposit being held? Does it bear interest? Can you give the landlord an LC or CD instead of a check?

Rental concessions: do you get free rent? Moving costs? Other allowances?

Operating expenses: These are vital. If you aren't specific, you are giving the landlord a chance to write a blank check.

Tenant improvements: A work letter should specify improvements to be done, but what happens if you accept the premises in "as is" condition? What is the landlord's reasonable obligation? Make sure to settle this with specifics.

Renewal option: Spell out exactly how the option will be exercised and how the rate will be determined.

Options to expand: Nail down the how and the when.

Option to downsize: Yes, you should consider that option.

Right to cancel: Another biggie.

Subleasing/ assignment: Landlords like to say, "Use our standard language.”

Non- disturbance: While this is tough to get for a small tenant, it’s worth a request.

Building services: specify what the building will provide in services such as HVAC, power, telephone wiring (in California, be aware of M.P.O.E. regulations).

HVAC after hour charges: Ask what these are.

Toxic waste/ Americans with Disabilities Act: How would you like to find out it cost you money after you move in to comply?

Parking: What do you get? If you are charged, do you have to pay for all your spaces, even if you don't use them?

Signage: Where are you allowed to have signage? What can it look like? Who pays?

Amenities: What does the building provide such as security service? Food service? Shopping? Airport service? If you ask and they agree it's provided, what happens if they eliminate an amenity that was a major enticement for you to sign the lease?

Financials: What does a landlord require? Who will read them?

Lease: What form are they using (see earlier tip re: types of leases)? Ask for a copy to have your attorney begin reviewing it.

Warranty: Is the building in escrow? Are major improvements on the drawing board?