Negotiating Leases and Licenses
Let us start with some simple definitions:
- A lease is the grant of legal interest in land or properties which gives exclusive possession for a fixed period of time
- A licence is a permission granting licence to occupy or do something on someone else's property.
This article will focus on how best to negotiate a commercial lease.
The simple truth is all you need to be successful is good intel, honed negotiations skills and determination. Whether you are facing a lease end or a lease break, you should focus on six primary things.
Start the process early: allow yourself 12-18 months before the lease end/break to ensure you are in the most advantageous position possible.
Leave it late and your bargaining power will evaporate and your landlord’s negotiation position will be in the ascendency.
It’s wise to ensure that someone in your organisation reviews your lease every 6-12 months, to ensure you do not lose your (negotiating) window and that all parties are meeting their obligations under the terms of the lease.
2. How much space do you really need
The pandemic has changed every organisations’ workplace strategy – in terms of how they use their workplace and how much space they actually need.
Every organisation has to question what the purpose of the office will be develop its own unique blended workplace strategies (ie WFH, working in the office and/or Working From Anywhere – WFA). This will dictate what you need in terms of desk space, meeting rooms, informal breakout zones, reception, social area, etc.
If you are thinking about enhancing your WFH/WFA capability, will you need more IT/coms space?
Prioritise your needs as this will help guide your negotiations – i.e. what are you willing to sacrifice at the altar of arbitration.
The success of your lease negotiations with the landlord is dependent on good intel re local market prices and trends – ‘comparables’. Do not rely solely on information gleamed from property portals, as this does not include vital data such as prices and terms negotiated, properties which are ‘off-market’ and those which are deemed in the ‘grey’ market – e.g. sub-let space.
Someone who’s day job is negotiating property deals (ie a property consultant) will have this information at his/her finger tips and will also be well schooled in property negotiations techniques – what to say, when to say it, how to build the case, what the true value of each data set is (important as this determines what to sacrifice in the negotiation process and when to do so).
Remember, the more current and geo-specific the data at your fingertips, the stronger your negotiating position.
4. What else is on the market
If you decide to stay in the same area, what else is on the market (think off-market and grey market).
What other spaces and or buildings does your landlord own and how viable are these as potential options which meet your (identified) financial and occupational requirements.
If you decide - for financial or strategic reasons – to move to a new location, what viable options are there on and off-market, as well as on the grey market. Yes, you could assign someone to research the market but you would probably find the most cost-effective option is to appoint a property professional to do the job. Not only would they (probably) undertake a more thorough market trawl, but he/she would also validate the initial research and only present you with options which best meet your criteria, as well as manage the logistics of site visits and fact finding (about the property and the landlord’s agenda/flexibility).
5. Empathy – what’s the landlord’s agenda
In any negotiation, the more you know about the person on the other side of the table (what is their motivation, urgency, financial position/agenda, etc) the stronger your hand.
In most cases, landlords prefer to renew agreements with existing tenants as this eliminates the risk of void periods, financial loss, any need to update/renovate the space, etc. Knowing this puts you in a strong position. Therefore, what incentives can the landlord offer to entice you to renew your lease.
However, he/she might have plans for the space and your departure would be advantageous to them: knowing this also puts you in a strong position.
As they say ‘knowledge is power’, irrespective of whether you are involved in exit or renewal negotiations. Obviously, your strongest negotiation position is not to let your landlord know what your intentions are at the outset, as this weakens your position.
6. Consider hiring a professional
As mentioned above, identifying the best potential workplace, or negotiating a commercial lease (whether you are staying where you are or moving into new premises), is a complex activity. If this is not your day job, hire an expert because mistakes can be expensive – in the short and the long term/the life of the lease.
Some people mistakenly believe that it’s cheaper to do it themselves but, given the fact that your workplace is probably your second biggest outgoing, this could very quickly prove a foolish economy. Appointing a professional would not only minimise your long-term costs and liabilities risks. but it will also allow you and your team to focus on their ‘day job’.
A lease end/break can seem like a stressful and expensive interruption to your workload - and it is – but it is also an opportunity. An opportunity to think strategically about how you work, where you work and how best to protect the people you work with.