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Do your broker a favor: Thoughtfully manage your commercial lease negotiation

Most commercial tenants seeking office space rely on a real estate broker to help them find the right space for their business and to negotiate their lease. Most local real estate brokers (especially those specializing in tenant representation) can provide insightful and important comments and direction regarding the economic terms of a commercial lease. There is a limit, however, in what a tenant should expect from its broker when it comes to navigating the nuances of a complex commercial lease document.

Not only will a review of the fine print and legalese of a typical commercial lease document be beyond most brokers’ comfort zones, but, past a certain depth of review, brokers risk engaging unlawfully in the practice of law. Nevertheless, brokers are often reticent to recommend that their clients hire an attorney, because clients fear that this will greatly increase the time spent and costs incurred for the lease negotiation. If managed correctly, however, that does not have to be the case and obtaining legal review of the lease can significantly reduce the long-term costs to the tenant. So, do your broker a favor and proactively manage the lease documentation process. In that way you can achieve the right balance between the advice your broker can provide and the legal advice you need.

Managing the process involves finding the right attorney and setting the tone from the beginning. The following is a tried-and-true process:

• Most brokers can refer you to a lawyer specializing in tenant representation who they have found to be a productive and positive influence in prior lease negotiations. Interview the attorney and make sure the attorney has the time, expertise in tenant representation, and enthusiasm for involving the client and the broker throughout the entire process. Require the attorney to limit the initial review and comment to a certain number of hours (somewhere between 3-8 hours depending on the complexity of the lease) and request a regularly scheduled report of fees incurred as the deal progresses.

• When interviewing the attorney, inquire whether the attorney has worked with this landlord or landlord’s attorney in the past. Although not essential, a history of negotiations may allow for the process to proceed much more quickly based on previously negotiated concessions. The working history will in any event likely facilitate a cooperative tone from the beginning.

• Convey a sense of efficiency and urgency to keep the attorneys from too much back and forth. The more drafts of the lease that go back and forth, the higher the legal fees. Take time at the beginning to practically assess all issues and strategize your fall back positions in advance. Including both the broker and the attorney on a (probably lengthy) conference call after the attorney’s initial review of the lease is an effective management tool. By doing this, the client and attorney can pair the broker’s market knowledge with the attorney’s abilities to assess the best way to approach the landlord. In addition, before drafting begins, the broker may be able to flush out many of the issues raised with the other broker and reach acceptable compromises on many critical lease provisions.

• Even before the conference call, the client should convey its "hot button" issues so that both the attorney and broker can focus their efforts. In other words, client, broker and attorney should act as a team to perform a risk analysis to determine priorities and go-back positions.

• Bring in your construction experts early to speak with the landlord’s construction team and to advise the attorney on ideal terms of the work letter. Attorneys are not as likely to know the ideal approach to construction issues, but these issues often impact important sections of the lease (e.g., delivery dates and term commencement). Unfortunately, in many negotiations, the work letter is put off until the end. Negotiating the lease before receiving the input of the construction team wastes time and unnecessarily increases fees.

Commercial landlords create one form of lease which they use for all tenants of a commercial office building—whether that tenant is leasing a 3,000 square foot suite or a 30,000 multi-floor space. Moreover, landlord leases are absurdly one-sided, arcane, documents. While the larger tenant may be successful in challenging the truly unfair provisions, all tenants should prioritize and strategize their lease comments. This is not a job for a lone broker. Instead, let the broker off the hook and manage the negotiation and documentation process so that the end product meets your specific needs and expectations.

[Next: What Traps Should a Tenant Look For in a Commercial Lease Negotiation?]

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Martha K. Guy, Esq., is an attorney at law in San Diego. She specializes in commercial real estate transactions, including leasing transactions, real property acquisitions and dispositions and numerous other transactional matters for her clients. With her background in both top-tier law firms and at senior executive levels in-house, Martha is uniquely able to provide both sophisticated legal experience and a business-oriented, cost-effective focus to her clients. Please contact Martha at (858) 551-0780 or martha@mguylaw.com.

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