An Overview of the Commercial Leasing Process

By Craig Wagener, PhD, MBA, MCNE

Many landlords, as well as tenants, are taken aback by unpleasant surprises that arise in connection with
terms set forth in an operative lease. Often such surprises are the result of a poorly crafted document,
containing having signed a document that was poorly understood or a document that was poorly crafted,
with either ambiguous clauses which are open to interpretation or extreme bias to one party.
This occurs more often than not with smaller, less sophisticated tenants who have signed, for whatever
reason, have chosen to sign the landlord's "Standard Form Lease" with few or no, if any, changes and
usually in the absence of without legal representation. Less experienced Landlords will often present a
do the same by the use of a standard, often outdated lease agreement, without really understanding the
terms and conditions of their obligations under that agreement will impose on them.
A lease is really a partnership agreement between the landlord and tenant; in which it sets forth lays down
the specific parameters of this business relationship. In a perfect world, If everything goes as planned,
most lease agreements will serve both the parties well. However, the true test of a solid lease agreement
occurs when there are issues arise that must be resolved. that need to be resolved. If the lease has not
been carefully drafted, a small issue can become a major issue problem for one, the other or both or the
other of the parties. Tenants may not understand that the landlords "Standard Form Lease" represents
his ideal situation, and may not serve the interests of the tenant when issues arise. Conversely, a
knowledgeable sophisticated tenant will often request changes to the lease that will be biased to his
position as a tenant which may be detrimental to the landlord. The best situation occurs when both parties
are protected and there is a win-win for all.
Usually the focus of lease negotiations is typically limited to the issues of base rent and
concessions. However, there are a host of other important issues that are often overlooked,
misunderstood or under-negotiated, even by sophisticated landlords, tenants and their real estate
representatives.
It is important that As a landlords you need to, find out how to you can better serve their your own
interests as well as and those of the your tenants.
The In the art of leasing commercial real-estate requires the examination of several areas, the following
needs to be addressed:
Understanding the lease process, from beginning to end. is just good business practice
Understanding key commercial real estate terms.
Analyzing a tenant's needs and determining their square footage requirement.
Providing a method of property comparison analysis based on a market survey.
Developing the Letter of Intent.
Negotiations, including terms, lease clause analysis and other issues of significance.
THE PROCESS - LEASING COMMERCIAL REAL ESTATE
The process begins with a comparison an evaluation of the tenant's needs with the available properties. ,
to see if they match up with the real estate that the landlord is offering for lease. Should a match be
found, a basis for If these initial discussions result in a match between what the tenant needs versus what
the landlord can offer, a basis is established for continued negotiations is established, ultimately saving
time and money for all involved., and this will ultimately save money, time and wasted effort.
Essential to any successful negotiation is each partys understanding of key terms and the working
dynamic of each business involved in order to gain balance between the needs of the landlord and the
needs of the tenant. requires that, each party have some understanding and flexibility regard to the

significant issues faced by the other. So a balance between tenant and landlord needs and desires will
need to be made to ensure fairness.
A knowledgeable real estate broker, who can successfully guide the tenant and the landlord through the
process, is imperative.
Key components of a successful match between tenant and landlord:
1. Analyze Tenant Needs
a. Location
b. Amenity and Service Requirements
c. Space Component
2. Market Survey to Select Qualified Properties
a. Location
b. Amenities and Services
c. History of Current Landlord
3. Physical Tour
a. Show the property to confirm suitability
4. Proposal Process
a. Prepare a letter of Intent to Lease
b. Send to landlord
c. Review landlord responses
d. Evaluate landlord terms
e. If satisfied, request a lease document
5. Negotiations
a. Develop the negotiation checklist
b. Solicit input from legal counsel
c. Implementation of tenant resources
d. Mutual execution of lease document
6. Buildout Process
a. Planning
b. Permitting
c. Construction
7. Tenant Needs
a. Efficiency and desirability of current space
b. Size of offices, open areas, corridors, and bathroom areas
c. Size of common use areas (conference, copy, break and storage rooms)
d. Computer room requirements
e. Finish standards

8. The Market Survey

a. Real estate broker will obtain all information necessary to produce a market survey,
including, but not limited to, general market conditions, rental rates, vacancy rates, time
on the market etc. Such information will be evaluated to establish terms and conditions of
prospective leases, including future rental rates, probability of acquiring a tenant at the
current rate as well as landlord/tenant lease negotiations.
b. Based on the results of a market survey using websites like Loopnet, CoStar etc., various
space alternatives can be located which meet the tenants stated objectives. Decisions
can then be made as to which properties qualify for the property tour.
9. Property Tour
a. Once a short list of suitable properties has been ascertained, arrangements can be made
to tour these buildings. It is helpful for the tenant to have a written copy of each of the
comparable properties in hand as it can become difficult to remember specific details of
each property as the tour proceeds from one building to the next. Tenants should also be
encouraged to write notes on each property during the touring process. This small step is
important and remains useful when a final decision must be made between prospective
buildings in the choice of the final selection.
10. Building Comparisons
a. Given the results of the property tour, decisions can now be made on how favorably each
building compares to the tenant's ideal, as delineated in the Needs Analysis and predefined architectural requirements. The efficiency with which one building accommodates
the tenant's needs over another building serves as a method used to trim a list of
possible choices.
b. Once a final choice has been made the process can continue with the Proposal Process.
11. Proposal Process Letter of Intent (LOI)
A Letter of Intent formalizes the many considerations that a tenant might have and should be
customized to reflect their specific needs. Just as the building's standard form lease document
represents the landlord's "wish list", the Letter of Intent serves in that same capacity for the tenant.
a. The tenant's negotiating leverage will be reduced if provisions such as options to extend or
terminate, liability limitations, escalation and security deposit provisions, rights of first
refusal, and other items of significance are not included in the LOI;
b. It is in the best interests of the landlord and tenant to spend extra time on the details of the
letter of intent to minimize misunderstandings, which might otherwise occur during the
course of negotiations, and minimize the associated cost of attorneys fees, etc.
c. The Letter of intent is non-binding, and should document that fact by a clause that imposes
no legal obligation to continue negotiations to reach agreement. The parties are obligated
to negotiate in good faith and, if no formal agreement is reached within a prescribed
period of time, either party may terminate the negotiations.
d. The negotiation process may take time, as both parties continue to counter-offer and find
common ground that hopefully, will finally reach a meeting of the minds. At this point a
Lease Agreement can be created to include all the agreed upon terms.
12. Lease Clause Analysis Issues of Significance
A good attorney, knowledgeable and experienced in lease analyses, is a very important part of
the process. Attorneys fees can be offset against the cost of a bad experience due to

misunderstanding lease clauses that may be limiting to either tenant or landlord. These fees should
be understood to be the costs of doing business; professional legal counsel should not be waived.
This may also involve further negotiation between attorneys, where certain clauses of the lease
agreement may be amended to protect each party.
Once a final agreement has been reached, the Lease Agreement can be executed.
13. Build Out Process
Hereafter, architectural plans can be commissioned that will become the basis for all subsequent
building alterations. The tenant's stated needs should be planned around the "usable" square footage
versus the "rentable" square footage.
Taking time to fully understand the tenant's needs will help prevent poor planning and better
insure that the functionality of the leased space will meet those needs, both initially and over the term
of the lease. This is ESSENTIAL in making the process work for you.