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Should I hire an attorney to review the lease?

A lease is a binding contract which will involve significant obligations- think in terms of how much rent will be paid over the lease term. As with any contract or other legal document, it’s a good idea to have your attorney review the lease before you sign it.

What charges can I expect to be added to the base rent on my commercial space?

You can expect to pay the landlord for your electricity unless your space is “direct metered” and you receive a bill directly from the utility company. The landlord will usually either sub-meter your space, charging you for the electricity usage as shown on the sub meter, or you may be charged a flat fee per square foot, usually a few dollars per square foot per annum. You may also be charged a set monthly fee for items such as water, sprinkler system, trash pickup or security. Most New York City landlords pass on real estate tax increases which occur over the life of a commercial tenant’s lease. In addition, long term commercial leases usually provide for pre-determined (fixed percentage) or CPI (Consumer Price Index) related rent increases at certain points during the lease term. These increases are called “escalations.”

This list of added charges is not exhaustive- if you are renting a retail space or a space in a large, “Class A” office building, expect other kinds of charges. A good tenant broker knows which charges are reasonable and which are not. Negotiating the best deal on your commercial lease means taking all of these charges into account and acting accordingly.

What is the difference between usable/carpet-able/net square footage and rentable square footage?

In the New York City commercial real estate market, annual rents are based on “rentable” or gross square footage, rather than the actual square footage available to the tenant- sometimes called “usable,” “carpet-able,” or “net” square footage. The difference between these two figures is referred to as the “loss factor.” The loss factor varies greatly from building to building in New York City, but it is generally related to the amount of common area in the building, such as the lobby, hallways and basement. This means that when you rent a 1,000 square foot commercial space, you may only have 600, 700 or 800 square feet that you can actually use. A good tenant broker will accurately calculate the loss factor and take it into account when negotiating the lease.

When should I consider taking a sublet?

In commercial real estate, sublets can range from extremely short term- six months- to long term- ten years. The benefit of a sublet is usually in the ability to rent an appropriate space for a shorter term than a commercial landlord would usually accept; a rent that is below market rate; or a space that is already built to your specifications. A sublet, however, is only as stable as the over-tenant. A good time to take a short term sublet is when you expect your business may grow or contract significantly and you don’t want to make a long term commitment either way. Another possible sublet scenario involves shared space with another company that could complement your business. Many sublets are not publicized; your tenant broker is best situated to find out what is available in the market and whether any given sublet can work for your business.

When should I begin my search for commercial space?

In New York City, it will take you any where from about six to twelve months to find commercial space and negotiate a lease. Obviously, this will vary depending on the complexity of your space needs and the availability of the size and type of space you are looking for in the market as a whole. Commercial building owners often list their space several months prior to it becoming vacant. The lease negotiation process can be expected to take several weeks to a few months, again depending on the complexity and size of the transaction.

What will my broker do for me?

A good tenant broker is much more than just a space finder; you should view your broker as you would your attorney or accountant. You want their advice about what space is best suited for your business and what are the best lease terms you can expect to negotiate with the owner. A good broker will help you in all aspects of the commercial lease transaction. That help starts with understanding your business and ends with a signed lease. Finding the space for your business is simply one small step in the overall process.

A broker is like any other professional rendering service to your business. You should expect your broker to represent your interests, to give you good advice and to help you through the leasing process; to help you determine how much space you need, your most important selection criteria, and then find a space and negotiate a lease that best meets your needs. Don't be afraid to ask your tenant broker all kinds of questions. Ask questions, and you will know your options. Make sure your tenant broker understands what is important to your business in the lease negotiation.

How much does it cost to use a tenant broker?

In most cases, the tenant pays NO commission to their broker. Instead, the landlord’s broker or leasing agent is typically paid a commission which is shared with the tenant’s broker upon the signing of a lease. The commission is paid by the owner of the building and is most often calculated as a percentage of the lease value and usually ranges between four and six percent. Where a tenant broker finds a space and negotiates for the tenant, the tenant broker receives a portion of the total commission paid by the owner. Ultimately the brokerage commissions are included in the cost of renting the space, but it is important to remember that a commission will most likely be paid whether or not the tenant is represented by a tenant broker.

How do I establish a relationship with a tenant broker?

The best way to get a broker to work for you is to engage them, in writing, as your exclusive tenant representative. A tenant broker will usually have a representation letter or broker agreement for you to sign and once they know that you are committed to them, they will work hard for you.

Why should I engage a tenant broker?

A tenant broker is usually paid a portion of the commission, but the tenant broker’s duty is to the tenant, not the landlord. Moreover, a small increase in the negotiated rent means significantly more money for the landlord when applied over the life of the lease, but only a small increase in the commission, versus no commission at all if the tenant broker cannot arrange a suitable deal for the client.

What is the difference between a landlord broker/leasing agent and a tenant representative/tenant broker?

The landlord’s broker or leasing agent has an agreement with the landlord to list the property and represents the landlord’s interests. A tenant representative or tenant broker represents the interest of the tenant in a lease transaction. Some brokers work exclusively for building owners, others only represent tenants, while some others will work for both.