Learn to Walk From Leases
When it comes time to negotiate floor space, businesses can carve out more favorable lease terms than most realize, claims Marisa Manley, a Manhattan real estate consultant and broker. A powerful tool for leveraging a landlord is the phrase I'm walking, she says.
To gain meaningful ends, the prospective lessee must come to the bargaining table with enough gumption to get up and go -- literally. Most, however, are unprepared to take a session-ending stroll, Manley observes. Here are four exercises designed to strengthen a business's lease-leveraging muscle:
1. The early jump. Time is essential for leverage. Getting good terms out of even a modest-size transaction can take a year. Yet, observes Manley, it's not until a few months before his or her company's lease is to expire that the typical president starts to act. By then the pressure's on: if negotiations can't be completed before the lease runs out, the tenant faces having to pay for extra rent periods, as well as meeting other provisions of the expired lease, which might entail stiff penalties.
2. The fallback position. Tenants tend to be too set on where they want to settle. Only when you have a true alternative, Manley counsels, do you have the confidence to walk. Therefore, shop for a lease at a second site. Even if you don't take the space, the experience provides valuable grounding in the real market -- the give-and-take of how deals are closing in the trenches, not merely how they're offered on paper.
3. The landlord pull. Determine what's motivating the lessor. Knowing the landlord's financial situation -- when the mortgage comes due, how big it is, if there are other fixed obligations, if there is a set of limited partners to satisfy every month -- can be a marked advantage.
4. The thrust and parry. Search out something the landlord values that you don't, then raise it to the level of a walking point. Example: sublease rights. While many tenants consider them good insurance and possible profit centers, others would just as soon not be bothered with managing space they're not occupying themselves. The landlord, however, does not have to be told which side you favor. Negotiate as hard as you can for something you don't want, and when the deal stalls, offer to switch the demand if the landlord will enhance something else. To name a few possibilities: lower rent, material provisions such as curtains and carpets, low-cost overtime air-conditioning, better expansion guarantees, even up-front cash. -- Robert A. Mamis* * *