ATLANTA, GA– When it’s time to negotiate a lease, exploring all of your options and an attention to detail are critical. Otherwise, you could find yourself saying, “Oops – I should have covered that in the lease” and crippling your bottom line.
Guests of the most recent episode of the “Commercial Real Estate Show” shared those observations and many others in a detailed discussion of the current issues surrounding commercial real estate leases.
Before entering lease negotiations, tenants should make sure they have solid representation in the form of brokers and experienced real estate attorneys, guests said.
“The reality for corporate America is, real estate costs are typically one of the three biggest items on [companies’] balance sheets,” said David Tennery (top right photo), a principal of Regent Partners’ Office Properties and Development Group. “My sense is you’re not going to negotiate any of those other two [items] without proper representation.”
Negotiating parties shouldn’t agree to overly general letters of intent (LOIs), guests noted. “We think it’s really important to include a lot of different points in your negotiations right up front to protect your interests and avoid costs,” said Phil Baugh (middle left photo), managing director of Baum Realty Group.
Baugh also urged prospective tenants to be on the lookout for problems with common area maintenance costs (CAMs) during negotiations. “CAM unchecked can be a black hole that just sucks profit out of your business,” he said.
For starters, tenants should make sure that CAM is based on leasable space in a building and not leased space. Otherwise, “if a tenant moves out, you’re going to be increasing your CAM costs and paying for that unoccupied space,” Baugh said.
“I think a lot of the business points that sometimes get left out of an LOI should be covered upfront because they’re such major points in a lease,” added show host Michael Bull (middle right photo), founder and president of Bull Realty.
Jonathan Neville (lower left photo), a partner with the Arnall Golden Gregory law firm, said a prospective tenant should pay close attention to how broad a landlord wants to make the definition of rent; leases are sometimes structured so that increases in annual rent also trigger increases in expenses such as parking and extra-hour utility costs.
“If you’re representing a tenant, the key is to negotiate those things out of [the definition of rent] that you want out,” Neville said.
Other topics included co-tenancy provisions; subordination, non-disturbance and attornment agreements (SNDAs); and the basics of properly executed leases and lease amendments.
The next “Commercial Real Estate Show” will be available March 15 and will examine the top commercial real estate associations in the nation.
Contact
Stephen Ursery
Wilbert News Strategies
404-965-5026
Daniel A. ‘Sonny’ Molloy Named Senior Director of National Retail Group
Mark J. Ruble is Senior Director of National Retail Group in Phoenix
