“BEWARE OF LANDLORD BROKERS AND THEIR ADVICE”
Landlord brokers generally do a great job representing landlords. That’s what they’re paid to do, and it isn’t easy. So you shouldn’t be surprised to find that the advice some landlord brokers offer doesn’t always serve the best interests of a tenant. The following are eight examples of the kind of advice you may hear from a dedicated landlord broker:
1. “We can get you the best deal because we know the market.”
The truth is, knowing the market does not translate into being able to negotiate the best lease for a tenant. Landlords never know which broker might bring them a tenant, so they let everybody know about availabilities directly, through frequent mailings, as well as through real estate databases which brokers subscribe to. A lease goes wrong for the tenant not because the broker didn’t know the market, but because the lease was not well negotiated.
2. “We can get you a great deal because we have a relationship with the landlord.”
If your company has the creditworthiness, which suggests you can meet your lease obligations, then any landlord would love to have you as a tenant. The suggestion that you need some kind of “in” to do a deal is ridiculous. Landlords need good paying tenants! When a broker entices you with claims of a special relationship with the landlord, you must ask whether such a relationship is consistent with an obligation to represent you. What your company really needs is a broker who will amicably and professionally represent your interests – not the interests of a landlord with whom they have a relationship or hope to build one.
3. “We can provide great service because we have a lot of branch offices.”
One doesn’t need branch offices to identify spaces in another city, because landlords list their availabilities through brokerage networks and databases. Landlords want everybody to know about what they have, so they can start getting revenue as quickly as possible. The key to signing a good lease is having good site analysis, good lease analysis, good lease negotiation and good follow-up. These depend on the caliber of the tenant representative, not the location of their offices.
4. “Don’t rock the boat and upset the landlord.”
Landlord brokers often advise tenants not to negotiate aggressively, not to demand that landlords comply with lease terms and, once a lease is signed, not to insist on the rights provided in the tenant’s lease. Yet, in our experience, landlords respect tenants who know their rights and pursue their interests in a business-like way. While it’s true a tenant often needs a landlord’s cooperation, it’s also true a landlord needs a tenant to help pay the mortgage, and it’s generally cheaper to keep a current tenant satisfied than to incur the cost and possibly lost income resulting from a dissatisfied tenant moving out.
5. “Hurry up and get the deal done.”
More than anything else, landlord brokers push tenants to get a deal done quickly. These brokers will tell tenants that if they don’t hurry up and commit to a space, somebody else will take it. However, hurrying into a deal risks neglecting comprehensive due diligence, overlooking costly drawbacks in a building, failing to properly analyze the risks and total costs of a landlord’s draft lease – and signing up for a transaction which can become a serious liability to your company.
6. “Since you’re such a big tenant, you have very few alternatives.”
While it’s true the number of large spaces in a particular area are limited at any point in time, this definitely doesn’t mean big tenants must accept whatever terms landlords care to offer. It’s critically important for a large space user to start the site search early. A million square foot tenant should start at least five years before lease expiration. Starting early means you’ll be able to see more spaces and include options that require building from scratch, thus expanding your alternatives greatly.
7. “The landlord’s draft lease is boilerplate, standard terms.”
So-called “Standard Terms” invariably mean pro-landlord terms because leases are drafted by landlords, who are naturally protecting their own interests. “Standard terms” often includes tenant budget-busters like operating expense loopholes, vague landlord performance standards and no audit rights. Don’t be pressured into accepting “standard terms.” A lease negotiation should be driven by your business objectives, not by a landlord’s desire to avoid risk.
8. “Just focus on rent and work-letter – let lawyers take care of the fine print.”
Many corporate executives imagine they’ve locked in their biggest costs by shaking hands on these two terms. However, the rest of the lease is loaded with costs. There easily are 18 or 19 significant non-rent costs in a typical lease, and it’s contrary to the interests of landlord brokers to identify these costs.
Lawyers don’t provide complete protection for tenants because they aren’t trained to analyze business issues which are responsible for so many excessive lease costs. For instance, lawyers don’t claim to know how desirable or undesirable a draft lease is from the standpoint of the current real estate market. They aren’t experts on the economics of building operating systems and aren’t expected to know how various ways of charging for electricity will affect costs.
What Is the Best Advice?
Overall, the most common reason tenants take bad advice from landlord brokers is that they’re impressed by the big deals such brokers have done. But as talking points, big deals are meaningless unless they’re good deals for tenants. The fact is that a substantial number of leases over 100,000 square feet have serious problems, even though these leases were reviewed by competent lawyers.
Best advice: when you are interviewing a broker, ask not about what deals a firm has done but about how a firm has protected tenants. You’ll probably find out all you need to know about the deals while discussing how a broker analyzes sites, evaluates landlords, negotiates leases, negotiates other kinds of real estate transactions, monitors build-outs, audits billings and in other ways protects tenants. How else can you be sure that a broker and the resulting lease will protect your company’s vital interests?