Recently we wrapped up an office tenant representation assignment for a fast-growing tech company. We began this journey at the onset of the summer of ’22, when the market seemed to lean heavily in the tenant’s favor.
But as we navigated the deal, an intriguing trend emerged.
Just as the summer of ‘23 was heating up, so was the desperation of the landlords.
A sea change was underway, and to our surprise, we discovered a market teeming with concessions and opportunities beneficial to our tech firm and if you’re reading this, beneficial to you, too.
From this experience, I discovered seven crucial tips for office tenants seeking to maximize their leverage.
NOTE: Before we dive in, let me say that as you make use of these tips, remember to be prepared for the negotiation. You can easily do this with our tool, The Prepared to Win-Win Negotiation Worksheet. It will ensure that you do not get overly focused on “freebies” (think concessions like free rent) at the expense of a comprehensive negotiation strategy for the entire lease.
OK, now to the tips and opportunities for you in this paradoxical market we’re in:
- Cap CAM Costs. In times like these, expect unscrupulous landlords to attempt to pass through all kinds of expenses. Did you notice a line item for snow removal in your Charleston SC office lease? You need strong audit rights to help you spot any unwarranted, inappropriate, or inflated charges. A cap on annual CAM increases is the best way to limit exposure to future CAM cost hikes. Negotiate a list of exclusions that can’t be passed through to you in the form of an expense. In times like these, when landlords will surely be on the ropes, it’s tempting for them to try to pass through unusual fees and expenses to generate revenue. Don’t let them.
- Multiple Renewal Options. Rather than committing to a lengthy deal, request multiple renewal options. This gives you the flexibility to vacate the premises if necessary—like if your business is underperforming or a better deal presents itself on another property.
- Reasonable Assignment/Sublet Rights. These clauses are important because you can assign your lease interest at a later date without unreasonable resistance from the owner. And in down markets like these, you may be able to negotiate a below market lease that could be an asset for the company long term that you can then assign to someone else.
- Flexible Use Clause. Negotiate for a broad use clause in the lease. Advocate for provisions that let you utilize the space for any lawful purpose. By expanding the usage, you’re free to diversify your business operations without infringing on the lease. Also, if you find yourself having to sublease your space, you will want a broad use provision to allow for the widest range of subtenants.
- Mutual Indemnification. While owners treat their leases as being something akin to a Holy document, the indemnification clause is often regarded as its inner sanctum – second only to Thou Shall Pay Rent. Regardless, you can negotiate its conditions, ensuring the clause contains exceptions favorable for you in cases of injury or damage caused directly by the owner’s negligence or intentional misconduct. In times like these, you can expect some landlords will be cash strapped in the future and unable to meet all of their obligations…which means they may cut corners and affect you in the process.
- Limit Changes Landlords Can Make To Amenities. Currently, many landlords are offering amenities like shared conference rooms and fitness areas. If these are features that you highly value, be sure to negotiate terms that grant you the power to approve any significant changes to these amenities. This clause is of paramount importance, as landlords are expected to make numerous adjustments to the common areas of office buildings in the future as the demands of tenants evolve.
- Tenant Termination Option. It’s often challenging to negotiate a termination option in a lease, even in this tenant-friendly market. You will have to push the landlord to secure, but it will benefit you in the long run. Let us know if you want to know our top 5 items to include in every termination option provision.
As the saying goes, “There’s no such thing as a free lunch,” and it’s particularly true in commercial real estate.
Both landlords and tenants are feeling the pangs in this era of record-high rents and vacancy rates.
So while the “free lunch” might not exist, you might just stumble upon a fantastic buffet at a bargain price, especially if you’ve mastered the art of negotiation and know what to ask for from a prospective landlord.
If you’re interested in learning more about our unique approach to tenant representation assignments, don’t hesitate to contact us.
We’re always ready to provide comprehensive guidance and insights tailored to your unique needs.
You’re one call away from maximizing your tenant representation, so connect with us today and let’s work together in securing the best lease conditions for your business.