This is a transcript of an episode of the LeaseSmart Podcast.
Bradley: So Craig, if you go back and look at just the last few days. Maybe even phone calls that you’ve had during the day to day as you’re fighting the big fight of allowing people to get the best terms of the best sites, what are one or two things that come to mind that you just have been really anxious to tell other people about so they build them into their terms or do site selections, etc?
Craig: One of the things that comes up all the time, and it even came up again today, is timing. The typical business owner waits too long before they start looking for space or before they start renegotiating a lease or a lease renewal with the landlord. It happens almost every time and there’s no reason for it. A guy called a couple of weeks ago and basically said, “Hey, my lease expires in 2 months and the landlord wants to raise my rent substantially and it’s not fair. I’m pretty sure we’re paying too much as it is, and they want us to pay even more.”
Here’s the thing, the landlord is used to their income going up every year. They can’t look into your business model and know how much you can afford, but they want as much rent as they can get and they just assume that you can pay it. Now, if you’ve only given yourself 2 months before your lease expires, the landlord knows that you cannot find a new space, get plans and permits, build it out and move into it in that time frame.
You are between a rock and a hard place when you wait that long. So, what I always say, and everyone in my business will confirm this, “You should be talking to that landlord 9 months early or a year early. We can even renegotiate leases before they expire because the landlord is happy to do that. It may be good for his financing or his predictions. Throw the old lease out. Let’s do a new one but you’ve got to leave yourself enough time so the landlord knows that you can and will move.
So this happens all the time and with new space, you need time with the permitting and planning and the build out and especially with renewals. If you don’t leave yourself enough time to move, you’ve lost almost all your negotiation leverage.
B: You said something really interesting, but it was almost for you just in passing, about the amount of time it takes to get into a new space. We know that it is going take a few months just to get through the negotiation process, and if it falls apart then you need to be able to pick your business up and move it somewhere else, but moving requires tenant improvements. It requires reconfiguration the space. It requires parking reconfiguration, lots of different things, and as a business owner I can tell you that those are the things that I don’t think about. I know that I need a new space. I know that there are people out there who are willing to lease to me, but I don’t think about how long it takes to get into that space once I have inked the deal.
How long should it take and how long should I plan on it being for the next one?
C: Well, we’re going into the world of nightmares here which is always kind of fun. I’ve been in the business long enough to see crazy things. You said, “After it’s inked then how long does it take?” Well, let’s talk about getting it inked.
Some of these big companies that own all this space have Leasing Committees that meet once a week or once every 2 weeks so your deal is brought to that ivory tower in front of the committee only certain times. Then, there maybe some information lacking or they may have a question. So they’ll kick it back and now it’s going be a week or two before you get your answer. That may happen several times, so getting a landlord to move on a lease can take a long time. Now it can also be fast if it’s a private individual that owns it and you’re meeting with him and shaking hands and moving the deal ahead. But big companies can act very slowly, and on any end, these people can be in or out of town. It goes to attorneys. Attorneys typically don’t jump on a lease and do it right away. That can easily take weeks to have a lease reviewed. Then, if attorney A wants to make changes and it goes back to the other side of the table to attorney B, then they want to negotiate changes things. That can go on and on, so it can be a real nightmare just to get the lease signed.
Now, when you get the lease signed, now we have to have plans drawn up and that can take a month or so depending on the complexity of the deal. Then, we go to get permits and if it gets kicked out, if the local municipality says, “Oh well you need to draw out some changes. We need some more detail here and there.” It goes to the Fire Department and ADA and there are many building codes that constantly change, so it can take months to get your permits after you already have the plans done. Then, you’ve got to build it out.
So, if you’re looking for new space and it’s fairly complex, we like to start a year in advance and at least 9 months in advance. 6 months would mean having to work very fast to make it happen . Oddly enough, I get people who say, “Yeah, I’m going to need space in a couple of months.” Okay, if we find something exactly the way you want it to be, we can do it. I mean I can do it. It won’t be me you’ll be waiting for but all these other people in the mix, we’ll be waiting for them.
So start early. Give yourself some time.
B: So back to the original statement that you had. Without all that time built in and knowing that there are all these approvals and being able to negotiate with the committee, etc., By staying in your space without having that discussion up until that last couple of months, the landlord really does have you over a barrel and you’re going to have to be faced with this tough decision, “Can I swallow the pain and agony of an increase in my lease? or do I have to find temporary space?” Moving into the temporary space and then moving out of the temporary space is expensive, and there’s no good solution there.
C: No, there isn’t. As a matter of fact, if you’re negotiating with the landlord on a renewal, you don’t want to let them drag their feet cause they may be doing that on purpose so that at some point you don’t have the time to move and you lose your leverage.
Now, in the case that I spoke about earlier, I wouldn’t be sure what to do. For the client who called in and said “I’ve got 2 months.” I don’t know if I can do anything. Luckily, I was able to convince the landlord that we could and would move, that it was important enough to us that we could get better rate and terms, as far as evaluation of the business and everything else. I said, “We both know that it would be painful but we will do it. We will move out into temporary space or work out of our houses or whatever it takes and move to new space unless you want to give us a good deal.” I was able to convince them that we would move out and everything changed. Now, instead of the rent going up, it went down considerably and we got a lot of incentives to stay. But frankly, without me being involved, if the landlord had just been dealing with the tenant, I doubt that would have ever happened. When a tenant representative gets involved then the landlord understands that we’re looking at the whole market, there’s a solution, there’s a professional involved. I don’t mean to pat myself on the back too much. Who knows what would have happened? In this particular case, it worked out very well but it could have gone very badly.
B: You know in the next couple episodes in this podcast I’d love to hear the description of what a tenant rep is and what the advantages are. We don’t have time today but I think that would be really great because I don’t think there are that many business owners out there who really recognize that there are dedicated tenant reps and so if they do want to get a hold of you so they can add you to the team, how do they do that?
C: Of course, my phone number is 800-962-2419 or they can find me at LeaseSmart.com. This is what we do all day, every day. We love doing it. We love saving our clients money and reducing their risk in many ways, which we’ll talk about in future episodes.