The power dynamic between tenants and landlords in commercial leases can often seem like that between a managing partner and first-year associate or, as Rebecca Tzou of Kelley Drye & Warren explains, “wildly skewed in favor of the landlord.” To help, she has some ideas on how to negotiate and “return some balance to the relationship.”
Don’t Go With Just Any Broker
Take time to select an enthusiastic and knowledgeable broker, suggests Tzou. Be sure to watch out for divergent interests too, she warns, since the broker is usually paid by the landlord. By choosing one that is “tenant-protective,” you can gain specific market knowledge “that will lend credibility to a tenant’s position in the lease negotiations,” she says.
Customize Your Letter of Intent
Tzou calls the letter of intent (LOI) the “best tool” you have to initiate a mutually beneficial negotiation with the landlord. “In negotiating the LOI, both sides will then be clear about basic lease terms,” she explains, in addition to gaining early insights into the landlord’s ability to cooperate. “A strong LOI will mitigate having to assume the landlord understands your business’s special sensitivities and is more committed to fostering a working relationship as lease negotiations proceed,” she says.
Review the Draft Lease
Be sure to include comments about issues, discrepancies and use of the space on the draft lease, and have it reviewed by the broker, IT staff, insurance and a space planner or architect, if necessary.