What are these Golden Rules?
Property people don’t tell tenants these because it gives them an advantage in negotiations. They are important because tenants need to know:
- How to best bargain a position.
- Who is acting in their self-interest.
- How to save money as things get hidden in a lease deal.
Rule 1 – Know what you want before starting
Sounds cliché but most tenants are not clear on what they want. Before starting a lease search consider:
- Your ideal business location(s)
- Size of space needed
- Yearly budget for rent and other costs
- Existing fitout or new (new fitout is costly)
- Lease start date and length.
- Any option periods (ie lease extensions)
- Car parking needs
- What is needed to leave the current premises eg make good costs?
Rule 2 – Understand the property market
Tenants should be aware of what is happening in the property market they are searching in – this will influence the space available and the lease costs. Before starting a lease search consider:
- What are the vacancy levels?
- Are there new developments coming soon that will influence the vacancy?
- What is the range of rents that you can expect to pay for a certain quality of building – can the business afford he rent?
- What other businesses are in the area – are they consistent with yours?
- Is it easy for your customers to find you?
Rule 3 – Agents work for who is going to pay them the most commission
Agents work for and get paid by the landlord to lease a space not by the tenant. Be aware that:
- Agents will show tenants only those premises where they will get a commission.
- Landlords always have a budget to pay the agent. The landlord recovers this commission via the tenant’s rent.
- Agents want to a deal even if it is not best for the tenant – otherwise they don’t get paid.
- Some agents will work in your interests. These agents are called “tenant representatives”.
Rule 4 – Conduct a full market search
Many vacant premises are not advertised so search for all options before inspecting any. Therefore before “racing around town” tenants should consider:
- Using Lease Search to undertake a market search so that all relevant landlords and agents can respond to your needs.
- Don’t just call one agent, call many to identify all potential options.
- Evaluate all options and create a shortlist.
- Save time and frustration – do not go and inspect options straight away! Wait until there is a short list.
- Even if the tenant wishes to stay in their current premises – get other offers to compare with the current landlord’s offer.
Rule 5 – A tenant’s best negotiating position is before signing
The landlord will offer what they believe they can get away with not what is best for the tenant. When considering a landlord’s lease offer remember:
- The Landlord’s first offer is not their best.
- Always negotiate on at least two offers for different premises – this creates a competitive tension between landlords.
- Landlords do this every day so they know how to hide costs.
- The best bargaining position is before signing so negotiate every detail and even add more terms to the lease proposal.
- Always ask for a lease incentive – landlords keep a budget for this.