Maybe Your Ironclad Lease Isn’t

In every aspect of the financial services industry we serve – wealth management, community bank and credit unions – employers are telling us the same thing: Like it or not, they are needing to re-assess their office needs in order to retain and recruit key talent.

When working with wealth management organizations, we find that a common perception – or misperception – among some leadership is that their current office leases are ironclad and cannot be changed until the contract term is nearly complete and up for renewal. While that is sometimes true, in the majority of cases, it’s not.

Driven by the pandemic, landlords from coast-to-coast are recognizing that the needs of their tenants are changing — and they’ve got to change along with them for fear of owning commercial properties full of empty offices and diminished revenues.

For wealth management firms, this offers an excellent opportunity to not only re-negotiate their current lease (or leases) well in advance of the expiration date(s), but to also re-envision the type and size of their office environment for the balance of the decade. Following are five strategies for enhancing your current and future lease.

Strategy #1 — Blend and Extend

This is a good strategy for wealth management firms that wish to remain in their current location. This is often a “win-win” approach wherein time is traded for money and other concessions. In short, through a Blend/Extend agreement, your landlord agrees to immediately re-negotiate key aspects your current deal — and apply to those new terms immediately – in exchange from you for a longer lease agreement.

For example, if you’re in the third year of a five-year lease, your landlord agrees to maintain – or potentially reduce — your current rent in exchange for another five-year extension. Your landlord wins by locking in a valued tenant through the end of the decade and you win by re-securing a space you already like and will continue to occupy at a rate that is at or below future market rates.

Remember, everything in a Blend/Extend deal is negotiable!

Strategy #2 – Use Leverage to Lower Your Rent

It may seem basic, but asking for a rent reduction is possible at any time during a lease. The worst thing your landlord can say is no. This is a viable strategy for any firm that is seriously considering re-locating when their term is over.

There are two negotiating keys in asking for a rent reduction. 1). Enter negotiation with current lease rates from comparable properties. 2). Inform your landlord that, without a reduction, your firm will not be renewing when the lease expires. Your willingness to re-locate will be your main negotiating leverage in this process.

Strategy #3 – Improve Your Improvement Allowance

For various reasons, your landlord may not be willing or able to re-negotiate your base rent. However, you might be surprised by how willing they are to pay for interior upgrades and/or re-modeling of your current space.

Landlords recognize that where and how workers work is changing. As a result, rather than lose you as a tenant altogether, they may be willing to help you make the capital improvements necessary that reflects your organization’s changing needs now and for the future. Again, the key here is to be firm in your intention to re-locate if your landlord cannot accommodate your needs.

Strategy #4 – Operating Expense Re-Cast

When it comes to monthly office expenses, rent is certainly the largest and most obvious. But often lurking within leases are stipulations for “passed through” operating expenses. These typically include an array of costs that do little, if anything, to fundamentally improve your tenancy. i.e., accounting fees, broker commissions, association memberships, advertising expenses and, well, you get the picture.

If you haven’t yet protected yourself with specific contract exclusions, this is another good way to immediately re-negotiate this vague but costly lease stipulation. In most cases, landlords will be willing to adjust or remove these expenses rather than lose you as a tenant.

Strategy #5 – Parking Concession

If your office building is in a desirous market, chances are you are paying a premium for each parking space allocated to your firm. But if a percentage of your employees are now driving to your office less frequently – and some not at all – what are you paying for?

A simple change in the parking provision language from “tenant shall lease a certain amount of parking” to “tenant shall have the right, but not the obligation, to lease a certain amount of parking” can make a significant difference in your monthly parking costs.

Landlords make a lot of money on parking – even more when the monthly wear and tear on the lot or structure is lower due to diminished usage. Don’t hesitate to have this discussion and stop paying for empty space between painted lines.

Take Advantage of the Times

In every aspect of the financial services industry we serve – wealth management, community bank and credit unions – employers are telling us the same thing: Like it or not, they are needing to re-assess their office needs in order to retain and recruit key talent.

Landlords understand this. With both lease rates and occupancy way down, they are recognizing the need to retain existing tenants with strong credit ratings. This reality mean new-found leverage for you and your current lease agreement.
But you have to apply it.

Corey A. Waite is a leading commercial real estate advisor to the financial services industry. As Founder and CEO of Rubicon Concierge Real Estate Services, Corey works directly with senior executives coast-to-coast to deliver strategic plans and transactional services focused on optimizing the needs of employees, clients and members.

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