I think I’m getting screwed on my lease!
It’s that time again. You just got a call from the leasing agent who got you your space and he wants to chat about re-upping your lease. Are you ready? Your first cause of concern comes when you realize that the agent also represents the landlord and your first question rightfully is, “who is this guy looking out for, me, the landlord or himself?” First and foremost it’s usually himself, then the landlord and last and certainly least – you.
You’ve always toyed with the idea of having an attorney look over the lease but you always assumed they were just too expensive right? Consider this recent example of a pharmacy client who I helped with in the negotiation of his lease.
Same scenario as above – the leasing agent called, the lease was coming due. The agent represented both the landlord and my client. Low and behold, my client called me asking if I could look over the amendment drawn up by the agent. Well, typos aside, the amendment didn’t do my client any favors. In the end, it proved to be a very profitable call that my client made to me.
After consulting with the client, I contacted the broker to discuss the lease. He was a little skittish at first because he thought he was going to lose the duel representation. When I assured him that wasn’t the case he quickly started revealing information – regarding what the landlord would and wouldn’t do. To my client’s amazement, the information was very useful to his negotiation – or rather my negotiation on his behalf.
Just as a matter of reference, the space is less than 1000 square feet in a medical building. The initial amendment offered 5 years, 5 months free rent, rent increase of 10% over what he was paying currently (below market) and a tenant improvement allowance of $4000. Not bad but certainly not great.
Enter the attorney. There was no bullying or cajoling or threats or coercion. It was simply a matter of asking questions of what could be done and what couldn’t. It was a give and take. In the end, we bumped up the term to 10 years with an escape clause built in for an exit anytime after 3 years. The rental rate decreased by 10%, frozen for 3 years and then increased by 2.5% each year thereafter. There was 12 months free rent – 6 months in year one and 6 months in year 2. And TI’s went from $4000 to $28,000 with any unused portion applied towards rent. The other give back was a pro-rated return of any TI’s and free rent if the escape clause kicked in.
The client’s been in the same location for 10 years. The likelihood that he’s going to leave is not great but it gave him peace of mind. In the end, instead of getting about $10,000 in concessions, I got him closer to $50,000. Cost to him for the attorney – less than $5000. My client did the math, and low and behold, it really did make sense to hire a business attorney. Lesson learned.
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Greg Royston is a licensed attorney in California as well as a licensed real estate broker. His transactional law practice caters to individuals and small businesses with particular emphasis on business law, tax and real estate matters including leasing, acquisitions, dispositions and commercial loan and lease restructuring. Before practicing law, Mr. Royston was in public accounting (formerly part of the Big 8, now the Final 4) for eight years offering tax, estate planning and benefits consulting services specifically to high net worth clients and small and medium sized businesses. For consultation, he can be reached at 310-525-3713 or greg@sbaylaw.com.
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