By: Scott Pick, Executive Vice President, JLL
As a lease expiration date approaches, many mark their calendars in dread of the administrative tasks ahead. And although moving is complicated, it’s also a unique opportunity to reinvent your culture, address your space utilization and ensure your strategy is aligned with organizational objectives.
At JLL, my business partner, Brian Conroy, and I follow a strategically crafted roadmap to guide our clients through the process. This is the fifth post in a blog series; each post will serve as a stop on the way to your destination – success.
Next Stop: Negotiate Your Lease To Prepare for Occupancy
You’ve identified your preferred new office space, but the journey doesn’t end there.
Before you can start picking out furniture, you have the fun of negotiating a lease document. This is where a good attorney provides tremendous value. (Again, this is just another reason why building the right team of trusted experts before you begin is so critical to end with a successful transaction.)
After you’ve chosen your space, strategic, well-calculated negotiations are a must. Below are the next two steps to officially make your next corporate move.
Step 1: Negotiate Your Lease
At this stage, your team’s real estate legal council should be heavily involved in the review and finalization of two critical documents: letter of intent (LOI) and the lease document.
- The LOI: Before you negotiate a lease, develop a strong LOI to document all key details agreed upon in your RFP and subsequent proposals. You have spent several months going back and forth negotiating many details, and to ensure a smooth lease negation, they must be documented. Both landlord and tenant should agree to sign it before taking the next step. A good LOI helps ensure 100% transparency to all business points and deal terms, and eventually, will assist in development of the final lease document.
- Once the LOI is signed, you’re ready to enter into final negotiations of the lease document. Both attorneys will lead this part of the deal. A trusted real estate advisor will be actively involved and provide necessary feedback throughout this process, but the legal advisor should lead the lease negotiations. The critical piece throughout this negotiation is clear and coordinated communication to ensure no detail is missed and a clear message is being sent to the landlord.
Step 2: Determine Construction Details and Finalize Estimates, Budget
Along a parallel path of the lease negotiation, finalize all construction details. This includes:
- Delivery model
- Detailed estimates
- Base building assessment
- Total budget timeline
There are different delivery models to choose from, but typically we will always suggest maintaining control of the construction process.
Control is critical. The main benefits are control of the tenant allowance funds, control of the contractor (they work for you and not the landlord), and building a space that meets all your design and budget criteria.
Revisit Your Estimates & Budget:
Circle back to reassess and confirm your construction estimates and alignment with total project budget. The main players during this step will be your real estate expert, project and development services (PDS) professional, general contractor and architect.
Begin by strategically revisiting the budget developed during your initial financial analysis. This means examining everything, from soft costs (i.e. IT, furniture, security) to hard costs (i.e. construction). Confirm that the base building conditions are thoroughly inspected, and are in line with your expectations per the negotiation of the lease.
Also, make sure the entire project team has seen and commented on the final budget (allows for 100% transparency). Different team members with differing areas of expertise may find items you missed.
Another aspect to consider: Understand the specific accounting treatments for all components of the lease, particularly the tenant allowances. Increasingly, auditors are seeking specific lease language in order for tenants to treat allocations the most favorably under Generally Accepted Accounting Principles (GAAP). Keep in mind, the end goal is to make sure there are no hidden surprises when you sign the lease; ensure all your bases are covered.
Evaluate your timeline:
Finally, ensure that the project timeline is still in line with your current lease expiration (or move date objective) so that you don’t experience unnecessary surprises, such as missing your current lease expiration date.
At JLL, we like to play a significant role during the holistic journey. It leads to better end product, and a more successful outcome for our valued clients.
Stay tuned for the final post in the Roadmap to Success series—Planning & Implementation of Your Next Move—to be presented by Tim Kay, JLL, Project and Development Services.
A real estate professional can help you align business drivers with your real estate choices. Please contact your local JLL office, broker, or myself, if you’d like assistance with your office relocation or renegotiation at email@example.com.
About the Author
As senior vice president, Scott is responsible for driving the tenant representation group, representing corporate clients in Northeast Ohio. He specializes in corporate real estate, tenant representation services, portfolio management and more. View Scott’s full bio.