By Dale Willerton
In leasing, tenants don’t get what they deserve—they get what they
negotiate! Since 1993 I’ve been negotiating commercial leases and renewals
for chiropractors and coaching those who wish to do it themselves. From what
I’ve learned over the years, here are 11 tips that hold true for you,
whether you’re coming up for a lease renewal or are looking at a new space.
1. Create competition for your tenancy. You should be negotiating
on more than one location simultaneously. This is especially true with lease
renewals, even if you don’t want to move. The key here is creating options
so you can play one landlord against another. Let the landlord know you are
receiving proposals on other sites. Remember, the tenant is the customer—the
landlord is the seller. Make them earn your tenancy and re-earn your lease renewal.
2. Start the planning and site selection process well in advance.
For new locations, I recommend you start the site selection process at least
6 to 12 months in advance: Two months for site selection and negotiations, one
month to finalize the formal lease agreement, one month for design drawings,
two to three months for the office build out, and a one-month cushion out of
respect for Murphy’s Law. For lease renewals, you should start at least
9 to 12 months in advance. If you can’t get a good deal in the first few
months, you can still exercise your option to renew or alternatively kick-start
the relocation process if necessary.
3. Negotiate to win. Many chiropractors are so focused on not
getting taken during the leasing process that they forget to negotiate to win.
So what are you trying to win? You want to get as many landlord inducements
as possible—free rent, a tenant allowance, no deposit, a low rental rate,
a great location and more. (A tenant allowance is nonrepayable inducement money
the landlord gives the tenant to offset construction costs.) The landlord and
its agents are playing to win and so should you. It’s okay to negotiate
aggressively, even on lease renewals.
4. Ask for more than you expect to get. By “asking”
I mean that you should be negotiating for more than you expect to get. If you
want five months of free rent, then ask for eight months. If you want a $60,000
tenant allowance, ask for $80,000. The reason so many tenants are disappointed
with the outcome of their negotiations is that they neglect to build in room
to negotiate. They ask for what they want and the landlord counteroffers with
less. Just like a boxing match, negotiations should go a few rounds; that’s
the nature of the real estate industry.
5. Do your homework and talk to other tenants. You can gain
a wealth of information by talking with tenants who have recently moved into
a building or even those who have moved out. I recommend the direct approach.
Tell the tenant who you are and why you’ve come to see them. Ask for their
comments about the landlord and the property management and the rent. For lease
renewals, talk with other tenants in your building who have recently renewed
to find out how much they are now paying and how smoothly the negotiations proceeded.
6. Ask questions about the property. Tenants shouldn’t
rely on what the property manager, leasing representative or broker voluntarily
tell them about a specific property or leasing opportunity. You must ask questions
about both the property and the landlord. Think of questions such as these:
How long has this landlord owned this property? Is it for sale? How many other
properties does the landlord own? Is there local, onsite management? What is
the vacancy rate? Are any of the current tenants not renewing their lease and
planning to relocate? You may be surprised with the conclusions you can draw
from the answers to these questions.
7. Keep your success quiet. The number one reason your landlord
will use for raising your rent for the lease renewal period is that you have
been successful. If you have been making a profit in a particular location,
you will likely not want to move, and your landlord would know that, because
of your financial success, you would be able to afford a rent increase. Some
landlords will attempt take advantage of chiropractors (or any business owner)
since they know how inconvenient and expensive it is to move and setup a new
office.
8. Negotiate for lease renewal incentives. For some reason,
tenants often forget, neglect or are simply fearful of negotiating lease renewal
incentives. If your lease is expiring, ask yourself which inducements would
the landlord give to a new chiropractor. If new tenants to the building were
getting free rent and tenant allowances, then why wouldn’t an existing
tenant with a proven track record get the same consideration? The reason so
many chiropractors hire leasing consultants to negotiate for them is simple—they
work. In our company, half of the lease renewals we handle for tenants result
in a substantial rent reduction, plus free rent and a tenant allowance for renovations.
9. Don’t let one broker show you space all over town.
When you’re doing site selection you should contact each property’s
leasing representative individually. Telephone the “for lease” number
on the building and speak directly with the listing agent. This will help avoid
commission splitting and get you the best service. If two real estate agents
are involved, they are legally and ethically both serving the landlord, who
is ultimately paying their commission. Landlords pay hefty commissions to their
agents to help them—not you.
10. Never accept the first offer. Once the landlord’s
leasing representative has made the first offer or proposal, the real negotiations
begin. Don’t be too eager to simply accept their first offer, even if
it seems reasonable. With patience and good communication you can improve almost
any first offer, which may be nothing more than a smokescreen anyway. One landlord’s
first offer to my client, a doctor, was at $28 per square foot. I was able to
negotiate a long-term deal at under $10 per square foot plus a tenant allowance.
This saved my client over $2,500 per month in rent for their entire renewal
term. Do the same when it comes to your first offer.
11. Avoid giving unlimited personal guarantees. Sometimes a
personal guarantee is necessary, but I recommend what is called a “limited
declining personal guarantee.” (A personal guarantee is the doctor’s
personal promise to honor the lease agreement if the tenant or corporation defaults.)
Let’s say you are getting a $50,000 tenant allowance. It would not be
unreasonable to guarantee a maximum of $50,000, declining by $10,000 per year
thereafter. (The guarantee is $50,000 and reduces in value over time.) Many
variations are possible—so get creative. There is a big difference between
personally guaranteeing the entire lease agreement and giving a limited guarantee.
About the author: Dale Willerton is The Lease Coach, a certified lease consultant
who has helped hundreds of chiropractors. He is author of the book Negotiate
Your Commercial Lease and frequently speaks at professional conventions. He
offers a free audiocassette, “Leasing Do’s and Don’ts for
Doctors.” Contact him at theleasecoach.com, call (800) 738-9202 or email
dalewillerton@theleasecoach.com.
Provide your feedback on this article.
© Copyright 2003 Today's Chiropractic