Many corporate executives seem to believe a bad real estate deal could never happen to their company.  After all, they have in-house real estate departments, and their leases are reviewed by lawyers.  How, then, to explain Fortune 500 horror stories like these:

* A big international securities firm signed a lease which could unintentionally end up doubling their real estate taxes. The chief executive thought he got a bargain.

* One of the world's largest financial services companies signed a lease which gives it no right to challenge millions of dollars of expenses which their landlord bills them. This puts the company at a competitive disadvantage in an industry where companies are relentlessly cutting costs.

* A national securities brokerage firm signed a lease for a major portion of an office tower. But the lease didn't protect them against improper landlord billing practices. Frustrated at what he considered excessive landlord billings, the chief executive decided to "throw his weight around." The firm lost its lease in a rising market.

* A major financial services firm signed a lease requiring them to pay escalation charges which are about 100% higher than actual operating expenses. In addition, the landlord is charging the firm separately for steam, utilities, bathroom supplies and other services normally considered part of operating expenses. These excessive costs amount to more than $400,000 per year.

* A major bank became the anchor tenant in a new office building, and it was named after them. Yet their lease was negotiated so poorly that when the building was completed they had to pay tens of millions more to secure rights they thought they had when they signed the lease.

     Many tenants assume the main reason for a bad deal is that somehow a great space was overlooked. But corporate executives and law partners approve bad deals mainly because buildings and leases were inadequately analyzed, and/or the negotiations were handled badly.

     Just think about it: all brokers have similiar market knowledge, because landlords eager to rent their space notify everybody about availabilities, and brokers subscribe to databases covering the market.

     What really distinguishes a brokerage firm is its demonstrated ability to analyze options, identify the hidden costs in landlord proposals and negotiate a deal which will protect tenants.

Above: One company's top executives and lawyers thought they had a great deal at a coveted Manhattan office address, but the lease they approved backfired badly.  Lease traps brought much higher occupancy costs than expected, wiping out a substantial chunk of profits.  

8 key questions to ask 
before you sign a lease

1.    Has the landlord "remeasured" space to inflate numbers used in calculating rent?

2.    Do you know how the base year in a landlord's draft lease would affect your company's occupancy costs?

3.    Is the cost of running the heating, ventilating and air conditioning system likely to accelerate during the next lease term?

4.    Do you know whether the landlord is proposing a higher-cost or lower-cost method of calculating electricity expenses?

5.    Is the lease language specific enough when it supposedly excludes capital expenses from operating expenses?

6.    Is the landlord proposing a level of service competitive with what's available at other buildings?

7.    Are provisions about landlord performance adequate?

8.    Would a proposed lease make it necessary for your company to pay out of pocket for services you assumed would be part of the deal?

     While these are only a few of the questions that must be asked before you sign a lease, they do address some of the most important issues, and if  just these questions are properly addressed, a tenant will be much better off than might otherwise be the case.

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CTRR serves commercial tenants exclusively nation-wide,
providing real estate brokerage & consulting services 
to help cut occupancy costs

Commercial Tenant Real Estate Representation Ltd.
12 East 41st Street, New York, NY 10017
Phone (212) 684-4400     Fax (212) 684-4403    
email mmanley@ctrr.net

Copyright (C) 2005 by CTRR Ltd.
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