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Frequently Asked Questions

Leasing Space


How long does it take to complete a lease transaction?
There is an important distinction between the time required to sign a lease versus occupy a property. Once the lease is signed, many systems are kicked into high gear requiring considerable additional effort. This often includes architectural, construction, telecommunications, furniture, and relocation, among others. Finding a property and signing a lease can be done in 60-90 days, but construction and relocation can easily double this, with new construction taking the majority of this time at 60-90 days. The larger the requirement the longer the process will take for both the transaction and fulfillment. In fact, many larger transactions are strategically started 12-18 months prior to lease expiration. For a graphical representation, please click on the following link to see a MS Project timeline showing a typical lease transaction.
Read More » (Timeline – Lease Acquisition.pdf)

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How many square feet do I need?
Some brokers make estimating square footage a mysterious and complex process, but it really isn’t difficult for most transactions. The first step is to forecast the number of offices, cubicles, work spaces, and common areas that are desired for the next phase of a client’s occupancy and apply a generic square footage to each. Simply add up all of these spaces and, for an office lease, add 31% for circulation (hallways) and 15% for a typical building load factor. This will get you close enough to start the process. From there, differences in a building’s size and efficiency will determine the end result. An architect is very helpful in applying a space plan to a subject premises, but is often not necessary at the beginning phases of the acquisition. Please use the following simple spreadsheet to help estimate your square footage requirement.
Read More » (Programming.xls)

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How are brokers compensated?
Tenants rarely, if ever, pay for real estate brokerage services. Instead, brokers are compensated by landlords in the form of a commission that is either a percentage of the total leasehold rent or a factor of the square footage leased. Landlords recognize the value that a broker represents in working to negotiate a transaction, and since the landlord is the beneficiary of the lease income stream, it is customary that he compensate the broker for their efforts. Regardless of who provides compensation, the broker owes an absolute duty to perform in the best interests of their client without doing harm or otherwise compromising the client’s interests (known as agency).

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How does a broker’s involvement impact lease economics?
Professional brokers work in the field of real estate every day and it is their job to know what is happening in the market. As a result, they know how hard a prospective landlord can be pushed in lease negotiations to yield the best results. In almost every situation, a broker’s involvement will result in a reduction of the total rent paid over the term of a lease. The degree of savings will vary depending upon the broker’s knowledge and experience.

Some tenants think that working directly with a landlord will save them thousands of dollars in leasing commissions. This is generally not the case. Whenever a broker represents the landlord there is an agreement that provides for a commission when any lease is signed. If a tenant represents himself, that commission is paid entirely to the landlord’s broker. However, when a tenant is represented by a broker, the commission is split between the landlord’s and tenant’s agents. In situations where the landlord represents himself, there is often an “in-house” leasing agent who will receive a commission.

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Why does the Rentable square feet in my lease exceed the physical space in my office?
In an office space, there are two references that are often made: Usable and Rentable usable square footage. Usable square footage represents the amount of space contained within the four walls of a tenant’s space. Rentable square footage adds an additional proportionate share of the total Usable total of the building. This allows the landlord to capture the total area contained within the four walls of the entire building, which is an accepted international convention in the industry. The actual calculations can be very sophisticated, but the convention is the same, adding an average of 12% to 15% to a tenant’s Usable square footage (called the “load factor” or “add on factor”). A higher load factor means that the building is less efficient than others with a lower load factor (you are paying for more common area), yet this can be acceptable if the building has an elaborate lobby that presents an image that is consistent with a firm’s identity. A load factor of 18% or greater should be openly discussed between a firm’s decision-makers to ensure that the additional obligation is understood by all involved.

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What is the difference between FSG, MG, NNN?
There are several different ways that landlords can quote and collect rent. Regardless of the type of lease, rents administered under any of the various methods should be exactly the same once all of the variables are considered. However, quantification of all expense variables is critical in order to ensure a proper bottom line expense comparison.
Read More » (Article - Understanding Rent and Additional Rent)

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Isn’t it easier and cheaper to renew my lease directly with my landlord?
Easier? Perhaps - but cheaper? Unless you are in the business of negotiating leases regularly, it is likely that the landlord will have the upper hand since he is motivated to maximize the economic return on his property and will seek to squeeze the most money out of the transaction. The process of negotiating a lease is a delicate dance and you need to know the moves, which are different for a renewal than for a new lease.
Read More » (Article - The Renewal Game)

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How can I minimize my tenant improvement construction costs?
This is a difficult concept to handle, as every tenant’s expectations are different. Some clients look to construct a space that represents the prestige and prominence that mirrors the strength and stability of their business. Whereas, others simply look to create a functional and efficient space that gives them the greatest utility for the square footage leased. Perhaps, the best starting point is to determine what, exactly, the firm wants to convey to their clients and employees. In any situation, minimizing construction costs lies in two areas: choosing the right contractor, and managing the job from a knowledgeable perspective of one who has been through the process before. Like a predator, contactors can smell fresh blood, and some will pounce on the opportunity to us this to their advantage. The most common mistake made by an inexperienced client is being too vague with the specific details of the job. More detail is better when outlining the scope of the job, but this can be mitigated by spending the time and effort to outline the details of the improvements. Everything from the color and style of carpet to the type of ceiling, lighting, doors, etc. should be outlined. Luxury items are particularly dangerous, such as a glass conference room, custom cabinets, high-density file systems, or stone flooring, all of which can have huge variances in cost. By working with a knowledgeable advocate, tenant’s can quantify these items and make informed decisions. The first bids from contractors will identify whether you are on target or not. If the bids come in higher than expected, take the time to “value engineer” the scope of the project until the cost comes into line with expectations. This means cutting out or downscaling high-value items that are causing cost overruns, which can bring the project scope into line with expectations. Of course, this may mean compromising on items that you would have initially desired, but that can be sacrificed in favor of meeting budget. “Change Orders” can also create large discrepancies, which should be actively managed in relation to the original job specifications. Contractors will sometimes ask for a “change order” claiming that the scope of the work did not include particular quality or quantity of work. However, the original job scope may have, in fact, included such items, in which case, one must challenge the request and insist that the change order is inappropriate and that the work should be done in accordance with the contractor’s original bid. The more that you are engaged with the process, from start to finish, the better the result.

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Is a longer lease term better than a shorter term?
It all depends. There are several factors that must be considered when leasing space, many of which have a bearing on the term of lease that should be considered. Generally speaking, tenants will benefit from longer leases during a recession while lease rates are at lower levels, thus allowing tenants to lock in a favorable rent that might not keep pace with inflation. Alternatively, tenants may benefit from shorter-term leases when the economy is robust and rental rates are rising to new historical levels. Other important considerations can play into the lease term decision, however, such as the prospective sale of the company, scheduled expansion programs, funding grants, and many others.

A longer term can mean greater concessions that may include free rent, tenant improvements, and moving allowances, among others. The temptation can be great when a landlord is promising to pay for a beautiful new buildout in exchange for a mere 24 months of additional lease term. Yet this may be wholly inappropriate with the firm’s visions and strategy. Instead, the company might be better served to consider negotiating a termination option to provide strategic flexibility while taking advantage of offerings that might be hot in the market. The ultimate answer is entirely subjective to the company’s specific needs and limitations.

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What are the total costs associated with my lease?
Total leasehold costs don’t stop with rent. The can include any of the following:
• NNN expenses / CAM fees
• Expense escalations
• Utilities
• Janitorial
• After-hours usage
• Parking
• Over-standard usage
• Signage

These are just the standard rental charges – there could be others. The key is to consider ALL economic lease costs and compare them with alternative buildings. Only then, can you truly appreciate the cost of building “A” to building “B”, and so on. In addition, tenants must consider the costs associated with building and occupying real estate, such as telephones, IT cabling, moving, furniture, decorations, etc. The key is knowing that “total” leasehold costs are often more than the published rental rate and determining exactly what those additional costs consist of.

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Can I sublease my premises?
Yes, but with limitations – at least in the United States, where the position is clear that a group or individual cannot (generally) be held to personally perform an obligation that he/it entered into. Instead, the company or individual is permitted to alienate (sublease or assign) obligations under the lease to another. The concept stems from the abolition of indigent servitude (slavery), where an individual would be held to performance of obligations outside of his/her will. The idea is that you should be able to put another into your position for the performance of all or a portion of the terms of your lease. Importantly, this does not relieve the initial tenant from performance. Instead, the initial tenant is still held to the full performance of the contract, albeit offset by the performance of another. Additionally, landlords can impose restrictions on the ability to sublease or assign one’s obligations, such as the creditworthiness or business acumen of a prospective subtenant, among others. Landlords often outline several such limitations in the lease, including the requirement that the landlord must acknowledge a sub-tenancy in writing before it is valid.

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How do I get out of my lease?
Generally, it is very difficult to “get out of” a lease; after all, a lease is a contract, for which full performance is expected by both parties. However, it is possible to transfer the obligation, in whole or in part. Knowing exactly how to accomplish this is another matter. Market timing can have a lot to do with whether the entire lease obligation can be transferred. A tenant who signs a lease at the bottom of the market may be able to transfer the entire amount, whereas a tenant who signed at the top of the market may only be able to transfer a portion. Tenant’s in financial distress might need to approach their landlord to discuss options for reducing or deferring rent, either temporarily of permanently, which is best accomplished with the assistance of their broker, accountant, and attorney. In any event, you have to broach the issue, because “if you don’t ask, you don’t get”. See, “Can I Sublease My Space” above for additional information.

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How does zoning effect me in my search for real estate?
Zoning refers to the limitations of use of particular pieces of land established by the city or county, which is designed to establish harmonious pockets of usage throughout an area, which is often performed well before a building is erected. In established areas, re-zoning can be undertaken to mold an underperforming area into a vibrant business district, which can have positive effects for some users, while being detrimental to others. Think about your city, where houses are in one area, where retail, industrial, and office complexes are in others, often in proximity to each other to promote synergy and harmony between them. These pockets of use are intended to enhance the users’ satisfaction and success. The City of Irvine, California is a “master planned” community that represents an excellent example of such planning. Houston, Texas, however, generally has no zoning regulations, where a strip club can be built next to a residential development. This is not to say that Houston does not have harmonious development standards, because developers recognize the importance of maintaining such harmony. However, there are few, if any, restrictions, that would dictate where and what can be built. Nuances in zoning can be difficult to identify and can have serious limitations for prospective tenants. Using Irvine as an example, there are specific strips of land that are zoned for “office” use, but only for businesss engaged in the field of “research and development” or “design”. In such areas, attorneys or CPAs would not be permitted. So, the term “office” use can be misleading for the uninformed, and one signing a lease in such areas would still be held to the performance of that obligation even though they did not know of the limitations. The key here is to check with your local city’s Planning and Zoning department before buying or signing a lease on a building that you cannot legally occupy. Remember, you need to have a business license to legally operate in a facility and, if you do not obtain such license, the city will eventually find out about it and shut you down.

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Do I need a building permit for my tenant improvements?
The general answer is “yes”, but it can depend. Improvements that are strictly cosmetic in nature generally do not require a building permit. This includes items such as paint and flooring. However, any improvement that modifies the electrical, mechanical (air conditioning or heating), plumbing, structure, floor load, fire protection, or exiting must always be permitted, with the intention that the safety of the occupants be maintained, as based on the local building codes. Building codes can vary between cities, but the standards are becoming more aligned so that one’s expectations are generally consistent from area to area. The key here is to check with your local building department or an architect prior to commencing any work in order to avoid complications. Cities often employ personnel to specifically be on the lookout for unapproved construction, which, if found can be “red tagged” and can stop a job dead in its tracks. So, be careful when landlord tells you that it will be “OK” of you don’t permit construction as it could lead to major setbacks and financial hardship.