Speaking The Landlord's Language

The key to every commercial real estate lease is constructing an economic framework that works for both the tenant (my client) and the landlord.  Most tenants envision this simply as negotiating the lowest rental rate that the landlord can tolerate.   It is much more than that.

The other major capital expenditure after rent is the cost of remodeling and refurbishing the leased premises, commonly referred to as tenant improvements, or T.I.s.  This is the financial weight that breaks down most lease deals.  It is understandable that most tenants do not do not have much experience working out these issues.  But it always surprises me to find so many landlords lacking the imagination to creatively solve these problems.

The problem, when it arises, is typically that the cost to construct what the tenant needs is more than the landlord is prepared to spend.   This is where an experienced tenant rep broker’s understanding of the landlord’s investment perspective helps the most.  After all, return on investment is how they look at real estate in the first place! 

I recently had a situation where an office building landlord was quite stubborn about bridging the T.I. gap.  First of all, he was unwilling to fund the T.I.s outright but gave the tenant a free rent concession and told them to do the construction themselves.  But the concession offered was only half of the tenant’s cost.  When I attempted to bridge the gap with a request of additional T.I.s the landlord offered one more month -- $1.50/square foot --  for an additional $.10/s.f. on the rent for the three year term.  Apparently, he failed to do the math: 36 months x $.10 is $3.60.  Pulling out my financial calculator that comes to…an annual interest rate of 60%.  Non-starter.  So I patiently spelled out a loan amortizing three additional months of free rent at 6% interest that came to $.12 per square foot per month.  The landlord agreed to the deal and the lease got signed.  (Yes, I know many of you are thinking, where the heck can you rent office space for $1.50 per square foot?  Give me a call and I’ll tell you!)

The framework for a lease deal requires many beams and a good real estate broker to serve as an expert welder.

A Question Of Critical Nuances

Last month we addressed how to bridge the gap between the capital required to remodel and refurbish leased premises and the how much of that cost the landlord is willing to fund.  But there are nuances within those costs that, if overlooked, could turn out to be very costly to the tenant.

I recently negotiated an office lease deal that involved tenant improvements (T.I.s) well above what the landlord saw fit to pay and a tight move-in deadline on top of that.  The brokers on the deal and this sophisticated landlord put their heads together to see where cost and time savings could be found (referred in the trade as “value engineering”)  The landlord indicated that he would have his contractor do the improvements without pulling permits with the City which would save time and trouble.  Candidly, this “under the radar” approach is taken quite often if the improvements do not involve extensive structural, electrical, or plumbing improvements.  But there are risks.

As we were drafting the language surrounding the landlord’s T.I. allowance, I made sure that the tenant’s exposure to costs over the allowance were limited to “hard” construction costs – the cost of the general contractor’s labor and materials.  All “soft” costs – architecture, engineering and other fees – would be 100% the landlord’s responsibility. 

Guess what happened?  A City building inspector on his rounds spotted a large dumpster behind the building, went upstairs to take a look, and promptly slapped a stop notice on the door frame of the suite, halting construction on the spot.  Busted!  Now formal plans had to be drawn and submitted for plan check, and the cost of permits, and penalties would be incurred.  Because of the language I had worked into the lease, the tenant was spared many thousands of dollars of unforeseen additional cost.  The delay to the completion date was the only problem they had to deal with.

The moral of the story?Don’t let your clients, friends or family membersnegotiate a commercial real estate lease without having an experienced tenant rep broker at their side!

Do You Really Want To Deal With This?

Picture this:  you have negotiated a lease for a new office space for your business and need to get the lease signed so the landlord can start construction to get your space ready.  At the same time, you are busy corralling your troops to meet an important project deadline.  It is December 23 and the holidays are looming.  The landlord calls you – he is balking at signing the lease until you write him a side letter acknowledging that you will pay the utilities during the free rent period at the beginning of the lease term.  This obligation is inferred in the lease but the landlord has been burned by this situation before and he insists on the side letter.  You stop what you are doing to write the letter, sign it, scan it, and email it to your partner who is already away visiting his grandchildren in Ohio.  Lucky for you, he is at the house and his son has a printer.  An hour later, the letter is sent to the landlord.

Thirty minutes later – it is 2:00 now and you are running out of time before your project deadline and Christmas Eve – another call comes in from the landlord.  He asked you to submit two separate checks with the signed lease: one for the first month’s rent and another for the security deposit.  An odd request, but you complied.  You pick up the phone to hear him whine that he wants the security deposit check replaced because you didn’t write “security deposit” on the note line at the bottom and he is worried that if it doesn’t say “security deposit” at right there on the check it will be taxed as income.  He won’t sign the lease until you do.  It’s all you can do to keep from throwing the telephone out the window.

This last minute brouhaha really happened to me when my client – the tenant – was out of town.  My blood pressure rose again just writing this blog!  I solved both problems without aggravating my client.  By the way, I told the landlord to call his accountant who assured him the check was OK and wouldn’t incur any income taxes.

Friends don’t let (busy) friends represent themselves in lease negotiations.  Everyone should have a good tenant representation broker in their corner.

Time is Money With Commercial Real Estate Leases

Common economic sense guides the framework of most commercial real estate leases.  And a successful negotiation takes into account the financial objectives of both the tenant and the landlord.

For both parties, the primary economic factors are the rental rate, the free rent concession (if any), and the investment of capital by one party or the other in the form of tenant improvements.   There are some capital expenditures that just impact one of the parties: for the landlord, it is lease commissions paid to the brokers responsible for putting the deal together.  For the tenant, it is the fixturization of the space.

One key factor that is not technically considered economic is the length of the lease term.  In most circumstances, the landlord sees more value in a longer term contract over a shorter one and the tenant often prefers the shorter term to avoid being stuck in a lease given the uncertainty of the future.  An effective tenant representation broker knows how to keep the landlord’s value proposition in mind when guiding the tenant toward a deal tailored to their business needs:

  • Does the tenant need lots of free rent for a long buildout period for a retail space?  A longer lease term may appeal to the landlord and soften his resolve.   

  • Does the tenant need the landlord’s capital to build out office space to the tenant’s specifications?  Here again, a longer term means a longer amortization period for the capital investment and helps the landlord rationalize the expenditure.

  • The absence of free rent or capital expenditures in a deal for a space that the tenant can put to use in its current condition reciprocally opens the door to the possibility of a short term lease.

While the push and pull of the economic forces outlined above are evident in just about all lease situations, the nuances of needs and circumstances present many complications.  It’s like a football game – a successful team adjusts their game plan for each opponent.   

When it’s time to make a game changing real estate decision, bring in an experienced quarterback to help strategize the drive to the goal line.

Leasing Markets Are Not Created Equal

People are always asking me “how is the real estate market these days?”  Well, I explain, that depends on whether you are looking at residential or commercial; after we narrow it down to commercial, are they asking about investment or leasing?  Zooming in on leasing (which is my area of expertise), there are clearly different answers to their question depending on the type of real estate (retail, office or industrial) and where you are looking.  So here is a quick overview:

Office – Silicon Beach continues to be a submarket in great demand with low vacancy rates and high rents.  The technology economy is driving most office markets (that is, growing the most new companies) and is positively impacting many other submarkets including Culver City, El Segundo, and Hollywood.  Downtown L.A. is seeing some of these benefits, too; however, except for some pockets like the Arts District, downtown is still vexed by a relatively high vacancy rate (around 17%).  The best office deals can be found here.  The Tri-Cities submarket (Burbank-Pasadena-Glendale) are in a healthy state of equilibrium with rents growing modestly year over year.

Industrial – This market segment has never been tighter.  Vacancy in Los Angeles and Orange Counties is hovering around 2%.  Demand continues to be greater than the ability to build new buildings due to the shortage of available land priced appropriately for industrial development.  And yes, rents have gone up commensurately, on average 100% from rental rates about 5-7 years ago.

Retail – the reports of the collapse of bricks and mortar retail have been greatly exaggerated, to paraphrase Mark Twain.  What is changing however is what retail segments are growing and which are shrinking.  Hospitality (food and beverage), entertainment, and personal services are expanding.  Apparel and other merchandise is ebbing.  The toughest thing to figure out is whether the ultra-high rents in the most prestigious neighborhoods  like Beverly Hills, Brentwood and West Hollywood are really supportable.  Paying $15.00 per square foot per month on Canon Drive in Beverly Hills is not a guaranty of success!  In retail more than in the other market segments, property owners have visions of grandeur and are asking rents higher than what is sustainable for tenants.  Nowhere is this more apparent than in the reinvigorated neighborhoods of downtown L.A.

In summary, the strong economy is pushing up demand and rents in its wake.But there are still good deals out there if you know where to look.A good commercial real estate broker can provide the guidance essential to making a smart decision.I am available for a little free advice

Patience is a Virtue

It is an interesting commercial real estate market out there.  Office space is careening toward co-working spaces and creative expressions while vacancy rates range from 7% in Santa Monica and 17% in downtown Los Angeles (guess where the better deals are!)  The retail landscape is shifting from merchandise to service and hospitality but no, the shopping center is not dead.   Think of retail real estate like an open bed tomato truck: the industry is taking a sharp right turn and some of the tomatoes on top will fall out and make a splatter on the pavement but most of the load will make it to market. 

The real surprise is industrial, that boring mule of commercial real estate.  Vacancy rates in Los Angeles and Orange Counties are currently below 2%.  That’s right…2%.

There are a multitude of reasons for the tight conditions: old industrial buildings are being redeveloped as apartments or repurposed as creative office – think Silicon Beach and the Arts District in downtown L.A.  With the supply of undeveloped land naturally shrinking, industrial land is being priced out of the range that makes sense for industrial development.  And staring this shrinking inventory in the face is increased demand from “last mile” distributors fulfilling the delivery promises of Amazon and other merchants trying to compete.

The guidance I give my clients is to be patient.  If we don’t find the property that suits your needs on our first dive into the market, don’t panic.  My job is to keep my ear to the ground and scout properties as they become available.  But when they do, don’t hesitate!  I reported to one client looking to move their film industry special effects firm to Pasadena that a space had come up in a location they really liked.  The client said “Great…I’m leaving town for a week but when I return, let’s take a look.”  By the time he got back to town, the space was leased. 

The role of a good tenant rep broker is to educate his or her clients on the reality of the submarkets they want to be in.  If you are looking in downtown L.A. for office space, you have tons of choices.  If you’re looking for a warehouse space in Glendale or Torrance, be sure to budget in an extra month or two to find it. 

Keep it real and do the deal.

Should I Lease or Should I Own?

The economy is growing at a good clip and businesses are getting their mojo back.  The commercial real estate market is in a nice state of equilibrium.  Commercial landlords are getting decent rents and tenants can afford them.  But in the continuing low interest rate environment, many business are tempted to buy instead of lease.  After all, why should they pay so much rent if it is economically advantageous to own their own building?  Good question...complicated answer.

The economic factors that work in favor of ownership are very alluring and real: saying goodbye to rent increases and property tax surprises (when a landlord sells the building where you lease), control over building operating expenses, and depreciation.  An experienced commercial real estate broker should have the tools to plug salient data into a financial model and quickly analyze whether leasing or buying is to your advantage.  But there are several factors that your broker needs to run you through to see if you are really ready, willing, and able to be a building owner:

  • Buying a building requires capital for an equity down payment.  Think about the opportunity cost associated with those dollars; in other words, what could that money be earning you if put to other business purposes, i.e. new equipment that generates higher production output?

  • If you are considering buying a building that is larger than you need (SBA financing requires that the borrower occupy just 51% of the building), are you really prepared to take on the leasing risk and the property management responsibilities?

  • What is your exit strategy?  Will the building or commercial condominium be easy to sell on the open market, with or without your business inside?


These are complicated issues that should be talked through in detail with your real estate advisor.  No matter what your motivations are to buy, once you own, you are in the real estate business.  Think this through...do you want to be?

If you or one of your clients are evaluating whether to buy or lease, call me.

Adding Real Value for the Tenant

I get to brag every now and then.


I just wrapped up negotiations for a lease where I represented a residential real estate brokerage office.  We found the ideal building on a high profile corner in West Los Angeles that was right in the middle of their primary “farming” area – exactly where the company wanted to be.  There was only one thing missing and it was a big thing: exterior signage that would promote their brand to a high volume of traffic on the two busy intersecting streets that passed in front of the building. 


The building already had two large tenant signs on the exterior walls and the landlord deemed this was their limit.  But there was a small, innocuous address monument sitting in the landscaping on the corner.  It was the perfect place for a monument sign but in the 20 years the building had been standing there, the ownership was never motivated to erect one.   That is, until Aaron Weiner came along, wielding the colossal leverage of a 2,000 square foot tenant.  (Yes, that’s a little sarcasm!)  And so I pressed for an opportunity to create a benefit for my tenant far more valuable than grinding for a little lower rent rate.

I enlisted the support and cooperation of the listing broker.  Together, we convinced the landlord to engage a sign contractor and develop a design.  I demonstrated to the landlord how he could recover 100% of the cost of the sign from the tenants who appeared on it.   When they presented the design to the tenants in the building, the proposition was well received and several positions on the sign went very quickly.  But the landlord was slightly concerned about the two slots that remained.  So I explained how those empty positions on the monument would  serve as a magnet to attract new tenants!  That sealed the deal.

Some of the credit goes to the landlord who was intelligent enough to embrace the benefits of the sign.  But I had the satisfaction of scoring an unlikely victory for my client and creating long term value for the landlord. 

Unfortunately, I was unable to convince the owner to put my name on the sign.  (More sarcasm!)

When a Sublease Might Just Be the Answer

A business looking for a good real estate deal should always be open to a sublease.  This arrangement can be a bit complicated because it is really a deal between three parties: the tenant currently occupying the space, the landlord who must approve the deal and the subtenant.  But the economic advantages can easily outweigh the aggravation of getting all of the parties aligned.

When negotiating a lease, the property owner – the landlord – is first and foremost concerned with the value of their property.  The rent rate negotiated translates into net operating income and that is a key factor in calculating value.  This is why landlords will offer free rent in order to keep the rent rate as high as possible.

For a tenant looking to sublease, their focus is on cash flow: finding a subtenant to cover all or most of their remaining rent obligation.  Negotiations with a tenant trying to sublease their space will be focused  on their anxiety over paying rent for a space they are moving out of.  The pressure is on to find a subtenant as soon as possible and stanch the bleeding.  And a good broker should have the skills to leverage that anxiety to get the deepest discount possible in return for providing the immediate relief of  a paying subtenant.

There is an important caveat that brokers should always tell their clients in this situation:  that great sublease rate you were able to negotiate with the tenant might well go up when dealing with the landlord when you want to extend your lease at the property. 

To summarize, when you’re considering a sublease, both carpe diem (seize the day) and caveat emptor (buyer beware) apply.  

Don’t Mutiny A Difficult Landlord

Many of you have read my previous post admonishing you to “Pick Your Landlord Wisely.”  Well, the same wisdom that recognizes the best landlord qualities also has to make the most of stubborn and inflexible landlords.  Does that mean a tenant should run the other direction as fast as possible when he or she encounters one?  No!  What I do advise is that you make sure you have a good tenant rep broker getting in the mud on your behalf.  If you end up with a good, thorough lease, the only thing the landlord can do to interfere with your tenancy will be to neglect their maintenance obligations.  And your broker can even work in some lease language that will give you plenty of recourse should that situation ever arise.

I recently slogged through lease documentation that was a royal mess.  The lease appeared to be a blend of two or three different lease contracts cobbled together and there were embarrassing flaws throughout: redundant language, paragraph numbering that was out of sequence, and a mash up of references to landlord/tenant and lessor/lessee.  If that wasn’t aggravating enough, the landlord balked when I (and his own broker!) recommended changes to this “Frankenstein” lease to clean it up.  Then he tried to sneak into the second round of lease comments some common area charges that were not included in the signed letter of intent (lease offer).  Ugh!

If I can’t get logic and fairness to prevail, at some point I will recommend to my client that we walk away from the deal because the final contract will be full of holes and the captain of the ship – the landlord – cannot be trusted to keep the vessel afloat.  But if your broker (together with your attorney in situations like this) can overcome the landlord’s stubborn attitude and get a solid lease signed, you should be fine except for a little queasiness from the turbulent negotiations.   In the end, a watertight  lease will stay upright in choppy seas.

The Unavoidable Issue Of Tenant Creditworthiness

Recently, I was working with a tenant whose entertainment-based business was doubling year over year.  He needed to move out of his 4,000 square foot space and find something around 12,000 square feet to facilitate contracts that were coming down the pike from major entertainment companies and studios. 

We found the perfect building in the perfect location and lobbed a reasonable offer in to the landlord.  We were making progress negotiating terms but when the landlord looked at the tenant’s financials we hit a snag; well, more than a snag – a brick wall.  The landlord was concerned over the tenant taking on rent that was triple what he was currently paying and demanded a huge security deposit to offset what he perceived as the risk in leasing his building to my client.  The up-front cash demand killed the deal. 

My client was extremely disappointed.  This is understandable but I explained to him that I have successfully navigated negotiations for tenants facing greater challenges:

  • I had a client who had a recent bankruptcy on their record that would have cut off discussions with many landlords.  I coached them to present a story that explained how their recent financial troubles were unrelated to the business that would be operating in the space and paying rent.  We got over the hump and negotiated a very fair deal for them.
  • I had just finished negotiations on a 10 year lease of a surface parking lot in an upscale Westside commercial district for a client who was an immigrant from south Asia and who had just become a citizen of the U.S.  While he had several years of experience in the parking lot management industry, he didn’t have two nickels to rub together.  We got the deal done – with a sophisticated landlord, no less – without providing any financial statements whatsoever.  The tenant did have to pay an enhanced security deposit but I negotiated terms that will get most of it refunded to him after the first couple of years of the lease.

Tenants with less than stellar financials will occasionally encounter a very skittish property owner but there are others out there that will be much more open to leasing to a promising business.  

A good tenant representation broker can help write the story that will end in “happily ever after”.    

No Need To Succumb To Unfounded Fears

Far be it for me to tell you a good real estate broker and tenant advocate can build a protective force field that will protect your business from the occasionally harsh winds of the market and the law.  But I am here to tell you that there is no need to be afraid of the monster under the bed.  There is nothing under there…really.

I had a manufacturer client that had been doing business in the same building since their inception 55 years earlier.  As a concession to getting some rent relief from the family that had owned the property since the dawn of time, they agreed to a six month cancellation clause in the event the property was sold.  It never occurred to my client that might happen…and then it did.  When they got the six month notice from the new owner they were blindsided.  That is when I was referred by their banker to help them find a new home.

The president and CFO of the company were panicked.  How could their established manufacturing company possibly find a new location and move there in six months?  Their fear was existential  -- was the company doomed?

With 25 years of property management experience , I knew how hard it is to physically pry a tenant out of a space.  Ultimately, the law will side with a landlord against a tenant that is ignoring valid demands to vacate their premises but it takes time and a lot of legal gyrations.   My message to them was to take action toward the goal of vacating the property and communicate their progress to the new owner.  Six months might turn out to be a year but if they were responding in good faith to the demand to leave, the landlord would certainly spare themselves the legal cost of being draconian.  I also reminded my client that the new owner had plenty of hurdles of their own to clear in order to make the necessary changes at the property to accommodate their business there.

My client settled into their new home across town approximately 10 months after I signed on as their broker.  They followed my advice and kept the new owner informed and in the end, the scary monster under the bed turned out to be Shrek.  OK, maybe a little ugly but docile.

Hire experience and let it be your guide.  Don’t go it alone.

Tenant Improvement or Landlord Improvement?

One of the fundamental economic facets of a commercial lease is the value of the tenant improvements that that are constructed for the new tenancy.  Whether it is an office building, shopping center or an industrial property, paying for the construction of needed improvements or upgrades is a major consideration for both the landlord and the tenant.  In the case of a tenant improvement allowance, the landlord contributes a stipulated amount and the tenant pays for any cost overruns.  A good understanding of the logic behind these improvements can go a long way toward getting a little more for the tenant.  The key is to look at the nature of the improvements.  

A Heartwarming Landlord Story

Putting “Landlord” and “Heartwarming” in the same phrase may seem farfetched to some.  The truth is, landlords’ hearts freeze over only when tenants demonstrate a lack of understanding or respect for the contract they both signed.  When a tenant shows proper respect for the contract, the landlord can be their best friend.

Deploy Your Crystal Ball For Real Estate Planning

As a professional commercial real estate broker, I have come to the heartbreaking realization that my clients just don’t think abouttheir real estate every day; indeed, they think about it only when they absolutely have to.  The problem is that real estate decisions sneak up on you and then you find yourself with limited time to make them, and limited choices.

Sometimes The Real Estate Is Only One Leg Of The Race

When you are negotiating to purchase a business part and parcel to accelerate your growth, expand your business range, or increase your market share, there are two critical facets of a sound economic deal: the valuation of the business and the cost related to the real estate. 

When the real estate is for sale with the business, establishing the intrinsic value of the real estate is more or less a function of two standard appraisal practices: analyzing value by looking at comparative sales, and by looking through the lens of the highest and best use of the property.  

It becomes a bit trickier when the real estate is retained by the seller and leased to the buyer or is leased in the first place.  The rental costs of the real estate have a huge impact on the net income projections of the business and cannot be negotiated separately from the acquisition of the business enterprise.  Doing so puts untenable pressure on the dealings for the second piece and negotiations could breakdown altogether.  The two major financial pieces must be on the table at the same time. 

I am typically involved in the buy side and recommend to my clients that they let the business seller express their preference of whether they want to get the best possible pricing on the business or on the real estate.  Then everyone involved knows what part we will be negotiating and understands how the two are linked together.

Exercise both legs simultaneously or else you will be limping – or worse, hopping – toward your future success.

Keep A Scorecard When Searching For Properties

One of the messages I always convey to new clients when embarking on a search for a new location for their business is that it is a process; that is, the search itself serves to bring into focus what is important to them and that it is OK to shift their priorities along the way.  Nothing brings must-haves and deal killers to the surface better than actually touring several properties and their respective neighborhoods. 

Sometimes several of the tenant’s stated priorities are in flux and I find it helpful to keep track of the properties we have viewed with a scorecard that rates key criteria on a scale (I like 1-5; 1-100 or even 1-10 risks everyone getting lost in the weeds.)  Here is a list of criteria I rated for a client recently:

  • Budget – budget often evolves from the tenant’s original rent target.  When it comes to the economics of a given space, employee satisfaction and productivity trump rent.
  • Parking – abundance and security were key parking considerations for this client
  • Proximity to neighborhood amenities – the client wanted to be in a walkable neighborhood where their employees felt safe and where there was an array of food and personal services available.
  • Proximity to client’s manufacturing facility – as our touring progressed, neighborhood amenities moved ahead of being close to the industrial submarket where they manufacture their products and this slid down the priority list.
  • Proximity to other business in the same industry and industry-supporting services – this matters when you are in the fashion or media industry but not so much if you are an accounting firm.
  • Building and premises image and functionality – they valued a creative office environment and lots of natural light.

When I introduced the client to the scorecard I made it clear that it was not intended as a tool to choose a property based on the overall highest score; rather, it was a way to consciously take stock of their shifting priorities and steer clear of confusion that can derail what is always a complex decision. 

In the end, the tenant got the location they wanted and just as importantly, knows how they got there.


Getting Creative With Creative Office

One of the hallmarks of “creative office” space is the deconstruction of the walls that divide everybody and the collaboration and fresh ideas that spring from large, open spaces. Many of the images we see are of the most dramatic spaces created for large tech juggernauts. While these pictures are eye-popping, they also tend to scare off small and mid-sized business in more traditional industries. But fear not – creative concepts can be applied in smaller offices with great functional and aesthetic effect.

I am working with a regional accounting firm eager to change the feel of their space. This desire is motivated by the most profound reason: they know that they are competing with other firms to attract the best and brightest millennial accounting talent and want to present an environment that is cool and alluring. Want to know the secret to achieving this goal in a traditional office building setting? One word: furnishings.

Most people think of bow truss overhead structures, exposed air conditioning ducting, and concrete floors when creative office is mentioned but furniture systems are at the root of the functionality of creative space. Work surfaces are replacing work stations. Task seating is critical to wellness and productivity over the long term. Soft seating with style contributes mood enhancing color and, well…style.

For the accounting firm remodeling their existing offices, we started with a fresh space plan that carved out the open space. Then I set up a meeting with one of the largest dealers of modern office furnishings who could not only present a vast array of new concepts and materials, but could help them with the design and “spirit” of the space.

“Creative” not only describes the finished space but the inspiring process of getting there. Get a good broker on your team who can lead the way…and have fun!

The Hidden Value In A Lease Option To Renew

The lease option is one of the most common add-ons to a commercial lease and is more often than not granted by the landlord when asked for.  When the landlord drafts the lease they drop in their standard lease rider or amendment language.  There it is: the tenant may renew the lease for five years (typically) so long as they give the landlord advance written notice by a defined deadline.  End of story. 

No…it isn’t!  Also commonly found in option language is a clause that states that the option is “personal” to the party who signed the lease and cannot be transferred.  Most tenants don’t give much consideration to the possibility of assigning their lease down the road and so they don’t give this much thought.  But consider the following real situation I just negotiated for a retail service business in West Hollywood:

The shop space is in a burgeoning retail district in town that is experiencing exploding rents just a block to the west.  First, we were able to negotiate a set rent for the option period, so we avoided surprises that can come with a “fair market rent” reset.  Then I asked to delete the sentence that said that the extension option was not transferrable.  The landlord did not hold a strong position on this language – it has just been in their leases since time immemorial – and so he agreed to the change.

Now let’s project into the future.  The tenant decides for whatever reason to sell the business a few years down the line.  Let’s say there are three years left on the lease.  The high rents from a block over have migrated into my client’s neighborhood making the rent we negotiated well below market.  Having eight years of below market rent (three remaining on the original term plus five in the option) versus just three could positively impact the value of this business by $500,000.

Now that’s keeping your options open.

A New Location Involves So Much More Than Real Estate

It is time to find a new location for your business.  You know this is going to be a time consuming pain in the neck, so you call your trusted tenant rep broker – your advocate for all things real estate – and give the command to get started. 

No doubt, a move is arduous and complicated, but it’s not just about real estate.  Every professional advisor that your business depends on gets involved in a change this big; indeed, your corporate attorney, your CFO, your outside accountant, your insurance agent, and your HR department all have a role to play.  And the outside business growth consultants that you recently engaged to help steer your business to a successful future?  Yeah, them too.

Your real estate broker is the scout that runs out in front of the expedition, reporting back on market trends and available space for lease or purchase.   But it is also the broker’s role to know how each professional on the tenant’s team will be processing that information.  In particular, the broker would be wise to open a line of communication with the growth consultant to insure their efforts are coordinated to achieve a common goal.    I often encounter tenants who do not fully appreciate the teamwork involved.  As the consultant that initiates the relocation process, I am in a position to call to their attention the need to draw their other business experts into the fold.

The real estate broker may run ahead of the pack at first, but a lone wolf could jeopardize your goals.