Tips and Traps in Commercial Real Estate


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TIPS AND TRAPS

The following list of Top 10 Mistakes is a result of a survey taken by George Post & Company . The results draw from our experience in representing and advising commercial tenants in lease transactions.
Mistake #1: WAITING TOO LONG TO START THE EVALUATION PROCESS
Negotiations with the landlord and legal preparation of the documents can be very time consuming. Architectural plans need to be prepared, building permits secured and actual build-out completed. Six to twelve months is a good time frame to use when looking for new facilities. The longer the time period taken,the more leverage is retained in the negotiating process.
Mistake #2: BEGINNING A SPACE SEARCH WITHOUT DETERMINING BOTH CURRENT AND LONG TERM NEEDS
Evaluation of space needs include not only square footage but also the nature of the floor plan, communication needs, parking requirements, access and security. These considerations should precede the market and facility research phases. Long term planning includes obtaining facilities and lease terms which allow companies to expand, downsize or relocate as circumstances dictate.
Mistake #3: USING NO BROKER AT ALL
Unless someone in the company is already an expert in commercial real estate, most business owners cannot and should not take the time to learn this new industry. Since commissions are paid by landlords on most transactions whether or not the tenant is represented, the additional cost for tenant epresentation is usually zero.
Mistake #4: LEASE COMMENCEMENT DATE IS NOT TIED TO COMPLETION OF CONSTRUCTION
Leases should always include a clause which provides for an extension of the lease commencement date if construction delays are encountered which are not caused by the tenant.
Mistake #5: CONDITION OF THE PREMISES
Tenants who take possession of the premises “as-is” put themselves at great risk. It is best to have the landlord guarantee the space is up to current building, fire, safety, zoning and ADA codes. It is also important to have the landlord guarantee the electrical, plumbing, and HVAC systems are in good operating condition, particularly if the tenant has responsibility for maintenance and repair under the lease.
Mistake #6: USING THE LANDLORD'S PROFESSIONALS
In many situations the tenant should use architects, space planners and general contractors under their control to ensure the most efficient design and the least cost.
Mistake #7: LACK OF UNDERSTANDING THE TRUE SPACE COSTS
Tenants do not always understand the difference between usable and rentable space they are leasing and the impact on occupancy costs, or different types of leases such as full service, modified gross, net, etc. This confusion may cause business owners to make less than optimum decisions.
Mistake #8: PAYING TOO MUCH RENT
Tenants who do not obtain accurate, current market research may pay too high a rental rate. Reliable information is especially important with lease renewal negotiations. It is more costly for a landlord to secure a new tenant then to offer generous concessions to retain an existing tenant. Market knowledge can extract these concessions.
Mistake #9: PAYING FOR TOO MUCH SPACE
Tenant did not use a space planner and leased offices which were too large or had an inefficient floor plan. Tenant did not verify the landlord’s dimensions and figures and is paying rent on “phantom” space.
Mistake #10: LIMIT ON FUTURE FLEXIBILITY AND COMPANY GROWTH
How fast is the company going to grow? Will it be necessary to downsize? How likely is a merger? These situations, and more, indicate the tenant’s need for as much flexibility as possible. Proper language should be inserted into the lease document which will allow a cancellation or modification of the lease under certain circumstances.

 

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