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After personnel costs, rent accounts for the most significant portion of a law firm’s expenditures. As a result, more law firms are weighing the benefits of negotiating lease extensions early to remain in their current locations. But the decision to engage one’s current landlord in renewal negotiations requires a thorough understanding of the firm’s overall space situation. This includes an analysis of the building infrastructure, the firm’s current layout and efficiencies, projected growth, and available expansion. START EARLY For law firms the important thing is to start early. By undertaking an assessment of needs long before the expiration of their current lease, law firms have the ability to position themselves with maximum flexibility to take advantage of whatever alternatives may arise during the remainder of the lease. Starting the process early also allows a firm to include new construction and redevelopment opportunities as viable alternatives, thus further expanding the field of options available. The more options available, the better it is for the firm. For example, in early 2006, the law firm Dow Lohnes renewed and extended its lease for 147,000 square feet of premium space in Washington, D.C. Although the firm’s lease did not expire until 2011, the firm undertook an assessment of its real estate requirements in 2004. The findings let the firm negotiate a lease extension through 2020 at a favorable rate and concession package, reconfigure its existing space, and accommodate further growth while avoiding the high cost of moving. Here are some further suggestions for law firms preparing to enter into lease negotiations. KNOW THE BUILDING When buying a house, the potential owner generally undertakes a thorough inspection of the home. The same should hold true for those in an office building. When law firms are negotiating a lease, they will encounter a number of factors that may limit or enhance their ability to stay and grow in their current space. •

Is more space available in the building either currently or in the future? If the firm needs an additional 50,000 square feet but only 10,000 are currently available, it may need to look for additional space in another location or relocate altogether. But if a tenant with a large block of space is leaving in the near future or may not have a fixed renewal option, it may make sense for the firm to approach the landlord to talk about taking over that space. Understanding the expiration dates and options of each tenant in the building is a critical component of a thorough understanding of the building.


Is swing space in the building available? Frequently, during an office renovation, tenants are temporarily moved around the building to make it easier for construction to be done. While this may be mildly disruptive in the short term, it allows for a smoother construction process.


What is the age of the building and status of its physical condition? The roof, boilers, and mechanical systems can require significant capital expenditures, as can refacing the building and upgrading the lobby, elevators, and bathrooms. These potential and unexpected operating expenses can be passed on to tenants. It is critical to have a professional investigate the building and provide a thorough analysis of any deferred maintenance items or performance issues with the building’s infrastructure. While this certainly can have a significant cost implication to the firm, it is also important to know that the building can support the firm’s business for the length of the new lease term.


Does the building offer adequate security? In today’s security-conscious environment, tenants look for services such as lobby security, additional guards during business and nonbusiness hours, card-key-activated elevators, and secure floors. These elements are especially important to law firms, which are responsible for highly confidential client information and have employees who work long hours.


Is there adequate parking and Metro access? Parking is always a significant issue for law firms. This can vary significantly from building to building and should be addressed upfront. Depending on the amount of space leased and the existing tenancy of the building, preferential parking rights can often be negotiated along with visitor and client parking.


Is there an opportunity for signage on the exterior of the building? The importance of signage has increased as firms attempt to create a strong brand. FIRM AND EMPLOYEE NEEDS


Do the location of and types of amenities near the office benefit the staff? Legal professionals are known for the long hours they spend at the office, so a reasonable commute can be a welcome asset. Many firms map the home locations of their employees to optimize commute time. Some also consider the presence or absence of area amenities and services — such as restaurants, dry cleaners, day care, and retail stores — in any proposed location.


What is the optimal way to organize and configure the office? The space configuration of law firms, like that of many businesses, has evolved over the years. With a greater reliance on technology, any new build-out will require enhanced computer and phone infrastructure. Electronic information and database systems have decreased the necessity for expansive law libraries, thus opening up additional space for offices. In the current climate of mergers and lateral acquisitions, many firms are looking for better ways for their attorneys and staff to interact on a more informal basis. Thus, firms are creating spaces that encourage conversation. A thorough analysis of the existing space is required so that space functionality and the cost implications of updating the space are understood. It may not be practical and in some instances can be even more costly to stay and retrofit than to relocate to new space. As part of its assessment, Dow Lohnes examined current and future staff and space needs. This included looking at existing space allocations, square footage summaries by specific departments, and density ratios for each floor. The firm identified several space deficiencies, misallocations, and alternatives, including the needs to enlarge the cafeteria, reduce the library, consolidate the IT group into one location, reallocate vacant space in the accounting department’s suite, and convert other vacant workstations and offices into flexible war-room spaces.


Can certain back-office functions be located in less expensive space? Firms that have back-office operations often examine alternative locations for these functions, which can yield considerable cost savings. But the reduction in rental costs in a suburban or secondary downtown location may not tell the whole story. In investigating this alternative, a firm not only has to look at the cost implications — replication of technology, costs of transportation between locations, and potential new hires if staff commuting patterns drastically change — but also needs to examine how this will affect daily workflow.


Will the landlord want more money for a lease extension? In the context of a long-term lease extension, a firm should look at the amount of existing security deposits, letters of credit, or partner liability that currently exists. Given a long-term relationship with an existing landlord, a firm may be able to eliminate or limit the amount of lease securitization for the future. This is important to any firm, as its capital resources need to be as unrestricted as possible. PLAN FOR THE FUTURE Leases generally run from 10 to 15 years. While a firm’s current space needs are important to consider, an understanding of the firm’s long-range plan can help it accommodate any growth down the road. It is common for a firm to project out three to five years and lease space to accommodate that growth. In some cases, however, a firm’s growth may not match up with its fixed expansion options, and there are a number of ways a firm can manage its growth as well as its potential reduction in size over the life of its lease. Some concepts law firms should consider in planning for the future include:

• First right to negotiate

• Flexible subleasing and assignment provisions • Termination options • Renewal rights for all or a portion of the existing leasehold • Secondary rights to space Starting early and conducting a thorough analysis of real estate needs and options are indispensable components of building a sound real estate strategy, which, in the long term, can result in significant savings.

Thomas Doughty is the international director for Jones Lang LaSalle‘s law firm group, based in Washington, D.C.

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