A Look at Tenant Representation

A tenant’s search for the ideal space can be vastly overwhelming. Never mind the fact that there are countless buildings to choose from and what feels like an infinite number of terms for each potential lease, add to that the necessity of evaluating the company’s needs - both current and future - in order to determine the ideal space and one can imagine the stress one might experience throughout this daunting journey. Fortunately, tenant rep brokers are ready and willing to come alongside tenants and, with much knowledge and experience, help them navigate the process. The following are some typical questions a tenant rep broker might get asked along with typical answers. The actual answers can vary greatly depending on each tenant’s situation.

How many months in advance should a tenant begin talking with a tenant rep broker about new space? A lease renewal?

Whether you are a tenant in search of new space or even considering renewing your current lease, it’s ideal to begin your search 12 months in advance (or more if you are a large space user). This will give you time to assess the market, compare good options and allow time to reach an agreement on the terms of the new lease or renewal. Importantly, you need to read your existing lease if you have one to see if there are any required notice periods for renewal; they may differ from the suggestions noted above. Even if a tenant knows they want to renew a lease, it is still a very good idea to consider options and negotiate lease terms for the renewal as many factors may have changed since the original lease was signed.

How does a tenant representative broker get paid?

One common misconception that often keeps tenants from hiring a tenant rep broker is confusion over paying broker’s fees. The good news for the tenant is that typically the broker’s commission is paid by the landlord. If for some reason the landlord does not pay, then a tenant may have to pay its own tenant rep broker, however, in either case there are tremendous benefits in having a broker advocate for you throughout the entire process. Often the world of commercial real estate is an entirely new vocabulary and a business quite unlike your core business.

Ok, so I’ve hired a tenant rep broker. What does the process look like from here?

Your tenant rep will walk with you through numerous steps, including but not limited to:

  1. Strategy. A strategy session with your broker. During this meeting, your broker will help you assess the market and whether or not to renew your current lease, expand or downsize in your current space or begin searching for new space. If you decide to renew your lease, your broker will help you negotiate the terms of your lease with regard to current market conditions so you get the best terms possible.

  2. If you decide to move forward in the search process, your tenant rep broker will take you through an extensive matrix to make certain that all of your requirements, both necessary and “wish list”, are known before the search begins. During this time, you will assess overall business strategy and what role your real estate plays in this as well as potentially create a projected growth plan. All of this information will inform the search ensuring the most appropriate buildings/spaces are found.

  3. Search. Once you determine the criteria for your space, your broker will use a variety of channels to find your optimal space. She will connect with listing brokers, search numerous building data bases, drive preferred geographic locations or call directly on owners of property that might be a possibility, even if not on the market. Once your broker has a compiled list of possibilities, it’s time to go on tour.

  4. Tours. Tours of each of the potential spaces give you, the prospective tenant, more insight into factors such as space condition and layout, parking, amenities, green space, and the overall location of the property and the buildings adjacent to it.

  5. Short List & Request for Proposal (“RFP”). Once you find a short list of spaces that you’re ready to consider, your broker may prepare a formal request for proposal or RFP on your behalf. This proposal identifies business terms and other factors important to you and requests the landlord’s response. Although you may already have a general idea of the landlord’s proposed terms from previous conversation between your broker and the landlord’s broker, this is the time to begin to document the transaction in writing so you can truly compare the benefits of each site “apples to apples”. The negotiation of terms is an iterative process and may take some time. As you decide on the one site you want, you may sign the RFP document or you may proceed to prepare a Letter of Intent.

  6. Letter of Intent (“LOI”). The letter of intent or LOI is the offer you submit via your broker. This states the terms under which you are willing to sign the lease and may be more comprehensive than the RFP.

    Although it’s possible, it’s unlikely the landlord will agree to the initial terms of the LOI and both brokers will then engage in formal negotiations on behalf of their clients. During this time, your broker will use their expertise to leverage market intelligence to negotiate the most favorable terms on your behalf. They will also handle any communication with the landlord.

  7. Lease. Once both you and the landlord agree on terms and an attorney drafts the lease, your broker will review the lease to make sure it lines up with the business terms of your RFP and/or LOI. Your broker will continue to advocate for you throughout the lease negotiations to ensure the most favorable terms. Your attorney will review the document as it pertains to all legal issues.

  8. Tenant Improvements. After the lease is fully executed, the construction of your tenant improvements will begin. Often overlooked, a tenant representative also provides value to their client by providing referrals to numerous qualified professionals and contractors such as architects, interior designers, IT consultants, change management specialists and furniture experts. These professionals offer services that can help make a space more usable, efficient and productive, encourage more collaboration that fosters teamwork or any other goals that you have for your new space.

  9. Project Management. Your broker’s company may be able to provide project management services to oversee the construction on your behalf, or, you may decide to do this on your own, but be forewarned, it is a lot of work and will require a short-term dedicated resource.

  10. Lease Commencement & Move In. Once construction is complete, a final punchlist has been vetted and the governing authority has issued a certificate of occupancy, your Landlord should provide you with a commencement agreement to document the start of your lease. At this point you are ready to move in and enjoy your new business home!

Remember, just because your lease is signed it doesn’t mean your relationship with your broker is over. Your broker can also provide assistance during the term of your occupancy - for example, helping you with lease questions and options, answering general real estate or market questions and, if your business needs change, they can help you walk through your options (expansion, contraction, new locations etc.). Twelve to eighteen months (unless your lease requires longer notice) before your lease either terminates or is up for renewal, meet with your broker and decide how you want to proceed.

There are many key areas of negotiation that a tenant rep broker assists with. Whether you decide to find space for the first time, renew an existing lease or move, a broker’s knowledge of market rents, market standards, general rules of thumb, landlord preferences, market experience and relationships are just some of the tools that lead to better outcomes for tenants who elect to work with a broker. 

Ready to embark on the renewal of your current lease or the search for a new property to rent? With all of the moving parts involved in this process and the profound amount of expertise required for negotiations, don’t consider going at it alone. Find an experienced tenant representative broker, it is imperative for a successful - as opposed to stressful - commercial real estate transaction!