Blog Archives
Part 11 – last Article blog
11. Lender issues: Landlords will frequently reject tenant’s suggested lease modifications because they would impair the “financeability” of the property, so the tenant must understand lender concerns. In general, the lender’s primary concern is the assurance of uninterrupted cash flow; anything that might jeopardize cash flow will be carefully scrutinized. Sensitive lease provisions generally include tenant remedies such as rent abatement, offset rights (deducting damages against rent) and lease termination rights.
Successful negotiation means more than just the rent As noted above, each step of the commercial lease process and each provision of the lease agreement provides ample opportunity to improve the deal, and conversely, expose the landlord or tenant to costly and unnecessary expense. The successful negotiation will focus on more than just rent. By reducing risks and avoiding surprises, the frantic calls for help may be a thing of the past.
Part 7 – Common lease components
Below is a discussion of several provisions found in a typical lease agreement, and a brief summary of the issues and negotiating positions for each party. These are critical to focus on in every lease transaction as each could ultimately make or break the deal. Please also see the sample tenant checklist available on my webpage for other issues to consider for each lease review.
1. Construction and tenant improvements: Almost every lease provides for the construction or installation of tenant improvements to the leased premises or the surrounding areas for the tenant’s use, ranging from construction of an entire building to moving a wall. There are aspects of this process, including design, approval, timing, and execution of the construction, that are common to all leases, and are often found in the Work Letter attached to the Lease (which is often fully negotiated with the LOI). Each aspect should be dealt with to avoid unpleasant surprises later. The Work Letter can be very specific and must accurately reflect the complete arrangement of work between the parties. Also, the construction contract and related documents (not just the plans and specifications) are often prepared by an architect or other non-lawyer who relies heavily on forms and fails to notice conflicts between the language of the form and the deal as understood by the parties. The lawyer must review the construction provisions and exhibits carefully, as most construction disputes flow from the failure of the parties to have a common understanding, as reflected in a clearly worded document, and all terms and conditions should be reviewed and fully approved by the project manager or other construction personnel before execution of the lease.
Part 6 – Negotiating a favorable agreement
Before the parties begin negotiating the lease document, and before the lawyer is consulted, the design process typically has already begun. By the time the LOI is prepared, the parties usually have at least a preliminary space plan for an office lease or a site plan for an industrial or retail project. The basic scope and nature of the construction will have been discussed and an understanding of some sort reached. The negotiations should flush out the unstated assumptions and expectations of the parties and resolve points of conflict.
Negotiating the lease should not be difficult! In fact, many landlords recognize that providing “superior tenant service” begins by making the lease negotiation process as simple and efficient as possible, as long delays over minor details serve neither party. Increasingly, landlords are shortening the lease negotiation process through a system of alternate lease clauses used to substitute standard clauses as appropriate, to avoid having to write specific language each time an issue arises.
Blog Series, part 1
Both landlords and tenants seek help to resolve a dispute that has arisen with their commercial lease because they signed a misunderstood or poorly negotiated agreement. This is especially true of less sophisticated tenants who, for whatever reason, have chosen to sign the landlord’s “standard form lease” with few, if any, changes. Additionally, inexperienced landlords often use a form lease without fully understanding the terms and conditions imposed upon them.
The potential for dispute in a commercial lease can result from many things; however, the focus of lease negotiations is often limited to rent, concessions and other economic considerations. As a result, many important issues are often overlooked; misunderstood or under-negotiated (even by sophisticated landlords and tenants) that could materially affect the long-term success of the deal and are often the reason for their calls for help.
Commercial leases are often called “living” documents, as they govern the ongoing relationship of the landlord who owns or manages a property and the tenant who operates its business on that property. A lease is like a partnership agreement because it provides the parameters of a business relationship, and unlike many legal documents, the real work of a commercial lease commences when the document is signed and the deal is done. Negotiating the best possible deal is done throughout the entire leasing process, from the initial decision to move forward through lease execution. There are many significant terms and conditions that should always be considered when negotiating the deal. This article sets forth a few of the major lease provisions that landlords and tenants should focus on, but is not intended to serve as a substitute for consulting with a real estate attorney.
How well does your lease protect you?
The selection and acquisition of facility for a company’s business is one of its most important decisions it will make, and it can mean the difference between profitability and failure. Commercial leases are made for the long-term, and the payments made under a lease often represent a significant portion of the business’ expenses. The total financial burden of rent, costs of tenant improvements and other lease charges can significantly impact the overall success or failure of a business.
The focus of lease negotiations by a tenant is often limited to rent, concessions and other economic considerations. As a result, many important issues are often overlooked, misunderstood or under-negotiated (even by sophisticated tenants) that could materially affect the long-term success of the deal and the company. Negotiating the best possible deal is done throughout the entire leasing process, from the initial decision to move forward through lease execution. To reach the best deal, and to prevent costly disputes or unforeseen expense, it is crucial to negotiate a favorable and highly detailed agreement.
This really speaks to the heart of a serious problem. On-the-job training has traditionally been the primary path to knowledge by brokers when it comes to leasing, and as a result, you could spend years of expensive trial and error and still never attain competency. Did your tenant rep professional help protect you throughout the lease negotiation process, or were your left to fend for yourself once the base rental amount was agreed upon? Was your broker willing to fight for you when negotiating lease provisions with the landlord? Did your broker bring years of legal training and lease negotiation experience on behalf ot the tenant to your transaction, and take ownership of the terms and conditions of the lease agreement?
How well does your lease protect you? Are you confident that you’ve negotiated a favorable lease? Let us protect your company from unpleasant problems, it’s not just about rent when it comes to negotiating a good lease deal. You can better serve your company’s interests by mitigating the risks concerning your corporate occupancy, to negotiate the best possible deal in the marketplace. We’d be happy to show you why we’re Studley!
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Negotiating the lease deal
It is amazing how often companies find themselves looking for guidance because an unpleasant surprise has come up during the term of their lease, with the vast majority of such issues costing them significant dollars (that wasn’t included in their budgets) in attorneys’ fees and costs to remedy the situation. Often such surprises are due to having signed a poorly understood or poorly constructed lease agreement and could have easily been avoided. This is especially true of smaller, less sophisticated tenants who, for whatever reason, sign the landlord’s “Standard Form Lease” with few, if any, changes.
A lease is much like a partnership agreement in that it governs a business relationship that could last for many years. When everything goes as planned, most leases will serve the parties well but the true test occurs when there are hiccups in the relationship. If the lease has not been carefully drafted, a hiccup can become a major problem. Tenants often lose sight of the fact that the “Standard Form Lease” represents the landlord’s wish list, and if not appropriately modified, will likely not serve their interests when issues arise.
Most tenant rep firms do not fully protect their clients throughout the entire leasing process, as achieving a favorable deal includes the careful negotiation of the definitive lease agreement. This is where our Studley team differs from the rest. We’d be happy to show you why we’re Studley!
It’s official: Target taking over Tamarac Square in Denver
Southeast Denver‘s Tamarac Square will be razed and replaced by a Target store and other retailers, Developers Diversified Realty Corp. announced today.
The Beachwood, Ohio-based firm characterized Tamarac Square as a “non-income producing parcel” that will be sold to Target for construction of the store.
Developers Diversified said it intends to redevelop adjacent retail space to accommodate “demand for additional high-quality retailers.”
The company, which owns and manages approximately 520 retail properties around the country, said it is also razing the Terrell Plaza Shopping Center in San Antonio and selling that property to Target.
“The redevelopment of the two non-income producing assets into prime shopping centers is a perfect example of the continued execution of our redevelopment strategy,” said Paul Freddo, Developers Diversified’s senior executive vice president of leasing and development.
Freddo said that Tamarac Square is currently 90 percent vacant.
The redevelopment will provide Target access to a market exceeding 720,000 people within a seven-mile area, said Freddo.
He said that upon completion of the 135,000-square-foot Target store and the renovation of the adjacent 33,000 square-foot convenience center, the project will be 98 percent leased.
The combined gross investment for the Denver and San Antonio projects is $40 million, according to the company.
Howard Pankratz: 303-954-1939 or hpankratz@denverpost.com.
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