A game of two halves…site selection & lease negotiation

So you have finally found your “ideal” site.  You have played the first half of the game – site selection.

You want to lease it and get going.

Before you sign on the dotted line and commit to a lease, take a moment to play the other half of the game.  This is where value is created or destroyed.

I have found most of my clients just think about the initial asking rental, and possibly what the first rent review may look like.  This has got some clients into trouble with unexpected costs occurring during the lease term and on expiry.

Think of your lease in terms of a lifecycle of occupation costs. What is the cost to enter into the lease, the cost during the lease, and the cost to exit the lease.

While rent and opex are the obvious costs to consider take the time to consider what are the financial consequences of your innocent looking non-numerical obligations in your lease? 

What is the cost of “redecorating” every 5-7 years? 

What are the costs of your reinstatement obligations? 

What are the costs of your maintenance and condition obligations?

What happens if there is a structural issue?

What are the costs due to the necessity of seismic strengthening?

What happens if you can’t occupy your site due to external factors beyond your control?

I had a client who decided to exit its premises after a lengthy tenancy.  To their horror, when they looked at the fine print of their reinstatement obligations they discovered that they were obliged to repaint the entire building and re-carpet it. There was no fair wear and tear.

That was an unexpected $250,000 plus cost.

So, the other half of the game is about negotiating and agreeing the commercial terms, so you’re lease costs to enter, occupy and exit your “ideal” site align with what your business model can afford.