With the large dollar amounts, aggressive parties, and difficult time constraints involved, office leases are some of the toughest contracts to negotiate. Chances for a successful negotiation are best if the attorneys maintain consistent, well-reasoned positions that readily balance their clients’ goals and the need for compromise. On the other hand, a successful agreement is unlikely if the attorneys adopt stubborn or disingenuous stances.
Here are four deal-breaking positions to avoid when negotiating an office lease:
- Claiming that a provision can’t be revised because it’s “standard.” Although this might be true in financing and loan negotiations, it’s likely untrue in an office lease transaction. Only a few lease provisions have to be consistent among all the tenants within a building (e.g., property taxes, operating expense provisions). Otherwise, landlords should at least consider the needs of a particular tenant in discussing the lease terms.
- Claiming that a requested provision can’t be adopted because the deal itself is “below market.” Any transaction a landlord is willing to enter in a relevant market place is inherently a “market” deal. Of course, it’s a common—and effective—practice to lower the rent to obtain some other advantageous lease provision. But expecting a prospective tenant to negotiate the remainder of the lease at half-strength because of an alleged “below market” price is a sure way to hinder a transaction. This is particularly true when invoked to refuse a fundamental protection for the tenant, such as a non-disturbance agreement or a reasonable ability to assign and sublease the premises.
- Demanding concessions from the landlord because the rent is “too expensive.” Like the situation above, a reasonable tenant wouldn’t enter into a lease that’s simply “too expensive.” Using the rent price to force the landlord to make unusual concessions or compromises, such as an extreme broadening of the “permitted uses” provision, is not only unlikely to succeed, but very likely to sour the deal altogether.
- Negotiating with your ego. As with all negotiations, counsel for either party should avoid personalizing an office lease negotiation. Treating lease issues emotionally can easily stall and often kill lease transactions. Similarly, engaging in combative tactics, such as reneging on prior agreements or sneaking in a hidden clause, only further polarize the parties and will almost assuredly jeopardize your credibility among other attorneys and potential clients alike.
For all you need on negotiating and drafting office leases, including negotiating strategies, sample provisions, and other commentary from both the landlord’s and tenant’s perspectives, turn to CEB’s Office Leasing: Drafting and Negotiating the Lease. For related guidance in other commercial leasing contexts, check out CEB’s Ground Lease Practice and Retail Leasing: Drafting and Negotiating the Lease.
© The Regents of the University of California, 2017. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.