If you are a business owner, the chances are that you’ve gone through the time consuming, sometimes confrontational, financially stressful and somewhat disconcerting experience of finding an appropriate site to operate your business from and negotiating a retail or commercial lease.
Wouldn’t it be great if you could hand this responsibility over to a person who understood exactly what you needed, was an expert in finding and providing a selection of sites for you to consider, was able to negotiate the best rent based on their market knowledge, have the landlord pay you for moving into their property and have the fees for doing this work 100% covered by the value created with the lion’s share of value left over for you! Sound like something you might be interested in?
This service does exist! It is commonly known as a Tenant Representative (Tenant Rep) or Tenant Advocate. It’s similar to what you might know in a Residential Property setting as a Buyers Agent, but in the commercial leasing property space.
A Tenant Rep works exclusively for you, the business owner, the tenant and has your interests 100% covered.
Why Would You Consider Using a Tenant Rep?
Landlords absolutely love negotiating with prospective tenants directly. Leasing their property to tenants is their fulltime job and they have all the information necessary to make great decisions. Great decisions for themselves! What’s more, they often employ the expert services of a Commercial Real Estate Agent. Can this transaction be stacked anymore in the Landlords favour! The Landlords Agent will most likely be professional, courteous, friendly and accommodating. However, the Landlords Agent works for the Landlord and is paid by the Landlord! They are motivated to get the highest rent they can and give away as little as possible, while only show you the properties that they have on their books which may not be the best fit for your business.
How can a Tenant Rep Help and Add Value for a Tenant?
An experienced Commercial Tenant Rep will be able to provide value for a tenant in a number of areas, other than just achieving savings in the rent.
1. Provide you with a qualified short list of ideal sites to choose from for new sites
This is done by,
- Developing a detailed understanding of your business needs, customer demographic and psychographic, business activity, ideal size and physical requirements, budget based on occupancy cost ratio, ideal property format, etc.
- Undertake a search, using expert and local knowledge, to identify appropriate sites that are on the market and off market. Off market sites are only available to Tenant Reps, who are actively engaged in the market on a daily basis and have existing market relationships which aren’t available to tenants acting for themselves.
2. Undertake negotiations on behalf of the tenant.
For many business owners this is a confronting part of the process where an agent, who does this activity on a daily basis, has a significant advantage over someone who may only negotiate a lease once or twice+ a year (for multi-site operators), or every 5 years for a Mum and Dad, or single-site business. Negotiating a lease includes the following,
- Negotiate the lowest rent based on understanding the market supply and demand position and knowing if it is a tenants market or a landlords market.
- Incorporating leasing incentives into the negotiation as a matter of normal process. A significant number of tenants acting for themselves don’t know to ask for, or understand how to package,
- Cash Contribution
- Fit out Contribution
- Rent Free Period
- Rent Abatements & Rent Offsets
- Work Undertaken by the Landlord at their Cost.
- Negotiating the right mix of rent, incentives and terms. To maximise the best outcome for the tenant it is critical to know what elements are “must haves” and what can be “negotiated away” in order to get the optimum terms for the lease.
- Preparing the Disclosure Statement or Draft Terms for the Lease. Experienced Tenant Reps will prepare the preliminary information required for the lease to be drafted. They will also review the lease to ensure that all essential deal terms are included and addressed as per the negotiations. There is often a risk that the deal negotiated gets altered or misinterpreted in the process of transferring the information from the agent to the lawyer for lease drafting. Once its signed, its agreed!
3. Negotiate Lease Renewals Incorporating Compounded Annual Rent Increases
All leases have an annual increase component that is either a set percentage, say 5%, or CPI + a percentage. This is a standard term of the lease and the annual rental increase happens despite what the market is doing. At the end of a lease term it is important to know if the passing rent is higher than the market rent. This is the opportunity to negotiate the rent back to market. So many business owners just renew and the annual increase continues…
Compounded Annual Rental Growth – What it Means
After 5 years with 5% increases, the rent will have increased by 28% compounded.
- At the end of the first renewal period in year 10, rent will have increased by 63% Compounded.
- At the end of the second renewal period in year 15, rent will have increased by 108% Compounded.
- The Question is… Has sales growth kept pace?
4. Consulting, Dispute Resolution & the Landlords Dominant Position
It isn’t uncommon for issues to come up during the term of the lease. Issues like COVID-19 or disputes over makegood are a common occurrence. Landlords often rely on their dominant position when interpreting and enforcing their will on tenants. An experienced Tenant Rep will be able to quickly interpret the reasonable industry acceptable practice in line with what the lease or legislation outlines to resolve a fair and equitable outcome.
5. How Much Should a Tenant Rep Cost?
An experienced Tenant Rep will create significant value for you as well as saving you time and letting you focus on your core business.
The investment made in the Tenant Rep should be covered by the value created and still leave you with the majority of savings and value created.
Some common fee structures include
- Charging 1,2 or 3 months of the first years gross rent.
- A monthly retainer and a smaller percentage success fee based on the first years gross rent.
- A flat fee
- An agreed percentage of the total value, the rent saved and value added, eg 80%/20%.
Each has merit depending on the work to be carried out and the desired outcome for the tenant.
Like More Information?
Your Leasing Co is a Tenant Rep and advisory service that caters for businesses large and small. They have a simple Performance Guarantee “We must Create Value… or its Free” arrangement with their clients. They can assist you with anything outlined above and are happy to have a No Fee consultation to develop an initial understanding of how they might be able to help. Your Leasing Co have an aggressive goal of creating $100M in savings and value their clients by 2030.