In previous blog posts we discussed why tenant representation is important and how without it, your business could face to pay thousands of dollars. Still not convinced? Let’s take a look at one example that happens more often than not.
You’ve had a great year and your business is thriving. But with growth brings complications and you’ve now exceeded your company’s number of allotted parking spaces. According to the property manager, you’re in violation of your lease. You try and reason with them stating the previous property manager said it would be no problem if the business grew, however since you have nothing in writing, the written lease stands.
You negotiated this lease on your own, without the help of a broker, and you’re now faced with potential financial penalties.
Business Owner Tip:
The written lease is always the ruling document in disputes. Verbal promises don’t mean a thing in arbitration, mediation or court.
If promises are made—get them in writing.
Situations like this one are easily avoidable with good tenant representation.
A good tenant representation can help devise a detailed strategic real estate plan should something like this happen. A tenant rep would have suggested a buyout clause be incorporated into the lease contract to minimize financial risk. Briefly, a buyout clause states that if the business expands and the landlord cannot accommodate the growth, the business has the right to terminate the lease under predetermined conditions. Some of the buyout conditions might include:
A buyout equal to three to six months’ rent to compensate the landlord for lost income until a new tenant is located.
Covering the landlord’s unamortized costs such as free rent, brokerage commissions, tenant improvements and legal fees.
Another way a tenant representation could have helped is by negotiating a “first right to expand” clause, which gives the business the first right to an adjacent space. By utilizing the services of a quality tenant representative, a company can reduce occupancy costs, increase profitability, mitigate lease risks and minimize time invested.
Hopefully this helps better paint the picture for why tenant representation is so important. To further help you navigate your way through the intricate process, check out SimpLEASITY ™, A Business owner’s guide to winning the game of commercial real estate leasing by Andrea Davis.
About Andrea Davis
Andrea Davis, CCIM, has practiced commercial real estate for over twenty years. Davis’s breadth of knowledge stretches from developers to landlords to buyer/tenant representation and investments. Within the commercial real estate industry, Davis has won numerous awards. The Phoenix Business Journal ranked Andrea Davis CRE in the top 10 of Ranking Arizona for the category of Office Brokerage. Her book, SimpLEASEity™, focuses on leasing and is the first in a series of commercial real estate guidebooks. Her next book, Simply Own It, the American Dream, is forthcoming this year.