Leasing Space?
5 Golden Rules that Property People Don’t Tell Tenants

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.