Tenant Representation
The function of commercial tenant representatives, who are licensed real estate professionals, is to perform site searches, narrow choices to review, suggest landlord concession approaches, negotiate letter of intent offers with landlords, limit occupancy costs, suggest business points to discuss during lease negotiations, and invite competing sites for a bidding contest if necessary. The goal is to provide tenants with expert local advice for the San Jose, California, commercial real estate market. Although the tenant rep has a fiduciary responsibility to act in the best interest of the tenant, he is paid through the landlord by splitting the built-in commission with the listing agent. So the tenant advantage is paid for by the landlord.
Here is how the tenant rep process works:
Tenants get assistance in analyzing space needs and showing how their business would benefit from changes in size and configuration of the business structure.
Retail Tenant Rep in the South Bay
Sometimes it makes sense to stay in the current space or the same building. Even if there is an existing option to renew, a tenant rep can provide a summary of current market factors that may justify a reduction in rent rather than conforming to an “automatic” increase as defined by the lease in different economic times.If a move is required, an independent search would include all available sites regardless of the landlord. Tenants get an unbiased exposure to choices that match their criteria, even those that may not be actively on the market.In summary, commercial lease agreements are vital to a tenant’s business. It is important that the tenant get a fair agreement that will allow the business to prosper during the lease duration. The agreement between landlord and tenant will be much better for the tenant if he uses the services of a tenant rep. Best of all, the tenant rep fee is traditionally paid by the landlord. The landlord’s agent has an exclusive agreement with a fee that is customarily split with the agent procuring the tenant (in this case, the tenant rep). So, the tenant gets representation that is rightfully his, and without any additional cost. Letters of intent cover the main business points to be negotiated in the lease agreement.
In addition to the main business points there are other lease clauses that must be reviewed. Landlords frequently have one-sided language for lease clauses that are tilted against the tenant and need further negotiation in order to be acceptable. Particularly risky are “standard” clauses as defined by the landlord. The lease agreement is just as important to the tenant and may need revision to be acceptable.Concessions, such as free rent and tenant improvement allowances, are important areas to consider in the lease negotiation process. Those and other contentious areas may require heavy-duty discussion to make the lease agreement satisfactory to the tenant.
Tenant reps provide valuable assistance to reach the goal. Finally, it is important to anticipate the future and protect the tenant from events that could cause harm if not covered in the lease agreement. Wording in the “right to sublet” clause may be important. Or, perhaps the language requiring the landlord’s responsibility to rebuild after a hazardous event is too loose. Sometimes expenses landlords apply to operations should be capitalized and not passed on to the tenant. The lease language must be fair for the tenant.
In summary, tenant reps provide a valuable service by giving the tenant assistance in optimizing the business space for improved profitability and reducing downside risk for unknown calamity.
These are some of the reasons to have a tenant representative on the tenant’s side firmly in place before the commercial lease starts, during the negotiation phase, and after the lease ends.
About the AuthorDon Kinney of Silicon Valley Land Company specializes in commercial tenant representation.
Our goal is to help tenants get a better building and reduce occupancy costs, often by 20%, or more.