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Question
I am looking at an office space that is already built out; however, I will obviously still need to do some improvements. The space I am considering is 1,360 sf. The rental rate is $14.50/sf/yr. I would like to ask for 6 months free rent in exchange for tenant improvements from the landlord. Do you think this is ridiculous to ask on a mostly built out space of which I will need minimal changes done?
Also, I am uncomfortable with being responsible to replace the HVAC during the lease term if by some chance it were to fail. I do plan on having an initial inspection on the HVAC system; however, I think this is an extreme request by the landlord. I have no problem with paying for regular maintenance and repair costs. Please advice on this as well.
Thanks for your help.
Kaye-
Unfortunately the economic terms you have quoted in your question only have significance in relation to the specific market conditions of the sub-market where you are considering leasing space. There should be some very generally accepted economic standards at various stages of the leasing cycle; i.e., when the market is "strong" vs. "soft" but even those terms are vague and not necessarily constant for your particular prospective space.
Consider if you have a business use that the landlord would see as complementary to his property? Does your business create a unique draw for more customers that will also bring business to other tenants? Does your business have an established track record? Are you taking a short or long term lease? There are many criteria the landlord will consider in coming to terms with you.
You likely know that the amount of free rent allowed and when each month accrues over the term is directly related to how credit worthy the property owner evaluates your business to be. Expect that you will discover very quickly if the landlord thinks your request for six months abatement is excessive.
It would be best to have a very knowledgeable HVAC mechanic evaluate the A/C unit BEFORE you agree to the lease terms on repairs and replacements - especially when the unit was initially installed (there is a date on the unit) and how many hours it appears to have been in operation. Don't not expect accurate answers to these questions from your landlord. Ask the HVAC specialist to tell you how they evaluate the unit and the precise reasons why. If the unit is worn out, do not agree to replacement in the lease. As you might know, your landlord might expect you to pay to replace every major component in the A/C unit and consider that a "repair" when in fact it would have been cheaper to buy a new unit. Be careful how the definition of "repair and maintenance" is defined. You might agree to maintaining a "standard" maintenance contract during your lease term as a means of placating you landlord on this matter, but I would avoid absorbing the replacement requirement.
Good Luck.
-Jim
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Answers by Expert:
Jim Avancena, CPM
Expertise
Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.
Experience
Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.
Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.
Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".
Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.
Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.
Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.
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