Strategically negotiating your lease will achieve the best possible agreement between you and the landlord. A successful outcome for the tenant is one where the most favorable terms are achieved with respect to occupancy costs, landlord concessions, rights and options. Many provisions of the lease are common topics for negotiation. The brokers and lawyers will play a pivotal role in the negotiating process and will assist in bringing about a final lease agreement by employing a number of negotiation tools. We recommend that you familiarize yourself with the Standard Legal Forms commonly used in the negotiating process to help further facilitate the process.

Preparation

Knowledge and planning are vital components of the negotiation process. Your advisor will be knowledgeable about the marketplace and be able to answer any questions you may have in deciding on a location for your needs. The advisor will often be the tenant's primary intermediary with the landlord or the landlord's representative with respect to business issues. It is important that the advisor have an understanding of both sides' positions.

Your advisor will assist you in focusing on and answering the following questions:

• What are you trying to accomplish?
• What items are essential, non-negotiable points to you?
• What items are negotiable for you to the extent that they are negotiable at all with the landlord?
• What is your timeline for completion?
• Are you a financially qualified tenant?

As a tenant interested in beginning negotiations for a space, you should work with your advisor to submit a detailed offer letter to the landlord. This is a written agreement containing only the most important terms pursuant to which the tenant is willing to lease the applicable space (i.e., the rent, term, concessions). As the offer letter sets the standard with which to begin negotiations, it is advantageous for you to present the landlord with your terms first. Be advised, however, that some landlords will insist on preparing their term sheet once the tenant has submitted one.

Once a term sheet has been proposed, the two sides will begin discussions returning to the major business issues. At this point, the level of involvement by the tenant's attorney often depends on the sophistication of the advisor and the size of the transaction. A larger transaction should involve a lawyer's assistance at the term sheet stage so important points are not lost even before an initial draft of lease has been circulated. Even in modestly sized transactions, while most brokers are quite capable of representing the tenant to conclude a final term sheet, please remember that it is, the tenant's, final decision to obtain additional assistance.

Finally, as the current market is so "tight," it is advantageous to get the landlord, in the offer letter, to agree to some exclusivity period while the lease is being negotiated. While this may be difficult, the landlord may agree to not accept another offer while both sides continue to negotiate in good faith, even though the landlord will continue to show the space.

Compromise

At such time as a final offer letter has been agreed upon, the landlord's attorney will supply the prospective tenant with an initial lease abstract that will eventually become the final lease agreement between the parties. In addition to containing the relevant business terms agreed upon in the offer letter, the lease draft will contain other provisions describing the various obligations and rights of the tenant and landlord over the course of the lease term. Note that these documents can often be 50-80 pages long!

To effectively negotiate this entire document, we will provide you with a negotiation tracker. The tracker will contain a summary relating the on-going status of each issue between the landlord and tenant.

Once the initial lease draft has been circulated, it is essential that the tenant, and advisor and lawyer work together as a team to promote the tenant's best interest. It is more typical at this stage for the lawyer to "take the lead" in the negotiation of the lease document itself, but it is imperative that the advisor stay closely involved as advisor will be best positioned to solve issues directly with the landlord when attorneys cannot reach agreement.

The negotiation process will progress as long as each side continues to compromise. Both sides will have to make concessions or a deadlock will ensue. If such an impasse is reached, it is often helpful for both sides to meet and try to resolve the issues. Some matters can be better explained in person by the principals or their representatives. A compromise can often be found after the other side better understands the issue that was raised.

Each round of discussions and compromises between the two sides will result in a revised draft of the lease reflecting the resolution of the items agreed to between the parties. Hopefully, each re-draft, and each further round of discussions will result in fewer and fewer open issues until a final agreement is reached.

Agreement

It is important, in the nature of compromise, that once an agreement is reached on a particular issue, that not too much time is spent fine-tuning every word; this could otherwise be costly, both in legal fees and in good will between the landlord and tenant.

Once the tenant and landlord have agreed upon a final lease agreement, the negotiation process is closed. The lease is executed by both parties who will then commence their respective obligations contemplated by the written lease agreement (e.g., the tenant will start preparing plans and specifications for the build-out of the space or the landlord will start to demolish the existing installation to prepare the space for delivery to the tenant).

Common Negotiation Topics

Alterations

The tenant will want flexibility to perform construction and other changes to the premises. The landlord will want to have the right to consent to any changes as it affects the building.

Assignment and Subleasing

It is in the tenant's best interest to retain this right as much as possible. The landlord will want to retain as much control of the space as possible and also have the right to approve all assignees and sublessees.

Casualty

In the event of a fire or other destruction, a tenant will want the landlord to fully rebuild the space to its condition existing prior to the damage; the tenant might also want the right to terminate the lease if the space is not restored within an agreed upon period of time. The landlord will typically agree to only restore the shell of the space and resist allowing a tenant the right to terminate the lease in any event.

Compliance with Laws

The landlord will want the tenant to be responsible for the cost of complying with all laws in connection with the leasing of and alterations to, the space. The tenant will want to be responsible for complying with those laws that are applicable to the particular use of the space, as opposed to laws applicable to the space generally.

Non-disturbance

The tenant will want the mortgagee of the building to agree that if there is a conveyance of title, tenant's use of the space pursuant to the lease will not be affected. The ability of a tenant to obtain such an agreement will depend on many conditions, including the terms of the landlord's loan, the relationship the landlord has with the mortgagee, the credit-worthiness of the tenant, general market conditions, etc.

Option to Cancel

The right of the tenant to cancel the terms of its lease under specified terms and conditions; if available at all, a typical condition would be the payment of a fee to the landlord to reimburse the landlord for its unamortized costs of leasing the space to the tenant.

Option to Expand

The right of the tenant to lease additional space in the building on specified terms and conditions.

Options to Renew

The right of the tenant to extend the current term of the lease under specified terms and conditions.

Signage

The tenant should have a clear description of the type of signage to which the tenant will be entitled and its agreed upon location.

Use of Premises

The landlord will want to limit the use of the premises by the tenant to the tenant's current particular business. The tenant will want to establish some flexibility if possible.

The foregoing items are intended only to be a sample of the issues, which commonly arise during the course of the negotiation process.