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October, 2002


 

Between the Lines
Read that lease carefully before you sign.

By Morgan Lewis Jr.

 

John Tobin might be considered a traitor by some.  He used to represent landlords and building owners in lease negotiations.  He negotiated top office space downtown in the East Ohio Gas Building and the National City Center.

Two years ago, Tobin broke ranks and formed a tenant consultation firm, TENANT reps.net, taking all the secrets he learned as a broker and using them to help tenants negotiate a better lease.  He designed a software package called Swiftcalc, which lets commercial tenants visually compare several lease deals at once.

Tobin's No. 1 tip for getting the best lease agreement?  "Begin the lease negotiation process early," he says.  "Researching the alternatives can take three months, negotiating a lease can take three months and constructing improvements at another location can take three months.  Allow a generous amount of additional time for unexpected delays in the leasing process."

Tobin says it's important to carefully read the lease and watch for these clauses and terms.

n Ensure that the tax and operating escalation language includes only standard items  Some landlords try to include items like building capital expenses that are usually not passed on to the tenant.

n No tenant has a crystal ball for knowing the space needs of their business in the near future.  Negotiate maximum tenant flexibility to terminate early, renew, expand, contract, assign and sublet.

n The "holdover" clause charges the tenant up to double the rent if the tenant remains in the space beyond the lease expiration date.  This ensures the tenant will take action prior to its lease ending date.  A 200 percent holdover clause can usually be negotiated down to 150 percent or 125 percent.

n The substitution of premises clause allows the landlord to relocate the tenant elsewhere in the building as needed.  This can either be stricken from the lease or watered down to reduce its economic attractiveness to the landlord.

n Bonus tip:  Hire a local architect to verify the square footage in the lease is accurate.  HOW TO REACH:  TENANT reps.net (216) 858-1000 or www.tenantreps.net

 

Morgan Lewis Jr. (mlewis@sbnnet.com) is a reporter at SBN Magazine.

 

 

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