Eisenkraft, Noah (2016). "Office Rental Negotiation", Custom Negotiations, https://customnegotiations.org/.
All content is © Noah Eisenkraft 2024, all rights reserved.
You are the developer, owner, and landlord of Corporate Court, a 40-unit office complex in Chapel Hill. You originally built Corporate Court 15 years ago and have maintained an average monthly occupancy rate of 93%. You are proud to run such a successful business.
One of your long term tenants recently decided to retire and give up their lease. The vacated office is a ground-floor corner unit in Building 3. It is easily accessible from the parking lot, but also far enough from foot traffic to ensure privacy. The retiring tenant used the office to see patients in her psychotherapy practice. It's a perfect office for a sole proprietorship or a small business.
You are meeting today with the owner of Executive MatchMaker, a boutique consulting firm that helps executives find new jobs. The owner of Executive MatchMaker toured the vacant office recently and said that it meets all of their needs. You scheduled this meeting to negotiate the terms of a potential lease.
You have identified eight issues that you want to discuss during the negotiation: office cleaning policy, security deposit, sublet policy, lease length, utilities policy, monthly rent, start date, and guaranteed parking allocation. Your negotiation is not complete until you reach an agreement on all eight of these issues.
As part of your negotiation preparation, you ranked the issues in terms of their relative importance. Your goal is to reach an agreement where you reach the desired terms on your most important issues. However, you should not feel limited by the list of issues described below. Feel free to add issues to the negotiation if they will help you create a better deal.
The most important issue in this negotiation is the security deposit. Landlords often require a security deposit to cover potential damage caused by the tenants, in addition to the first and last month's rent. It is returned once the tenant moves out, less any money required for repairs. You want a larger security deposit. A larger security deposit helps you repair any damage that tenants inevitably create. It is critical that you get a security deposit of two months rent.
The monthly rent is slightly less important. Based on your research, a reasonable monthly rent for Chapel Hill is approximately $2,200 per month. Charging a higher rent gives you more money for business.
The guaranteed parking allocation is important to you, but not critically so. A guaranteed parking space cannot be used by anybody except the tenant and their guests. Having fewer guaranteed spaces makes more spaces available for other tenants. You prefer a guaranteed parking allocation of no spaces.
The next most important issue is the sublet policy. Office leases often include a clause that describes the circumstances under which the tenant can sublet the office to someone else in their absence. You would like to reduce subletting. Subletting an office is a security problem for the other tenants in the building. You would like a sublet policy of no sublets allowed.
The remaining issues are relatively unimportant to you. The most important of these low-importance issues is the start date. The start date of the lease refers to the day that a new tenant begins paying rent. Although your current tenant has already vacated the office, a later start date would give you more time to make repairs. Starting the lease too soon rush the repairs and increase long-term costs. You'd like to get a start date of four months from now.
The second low-importance issue is the lease length. An office lease can be any length. Some leases are renewed monthly while others extend over several years. You would like to sign a long lease. It's expensive and time-consuming to find new tenants for any of your offices. If you had to choose, you would like a lease length of two years.
The third low importance issue is the utilities policy. Utilities such as Internet, garbage service, water, and electricity are sometimes arranged and paid for by the landlord. You would like to not pay for the utilities. It is more fair when tenants pay for what they use. Although it is not at all important, you'd prefer a utilities policy of no utilities included.
Finally, the least important issue to you is the office cleaning policy. Offices get dirty. A landlord-provided cleaning service can keep everything looking great and well maintained. You can reduce damage to the rental by having the office cleaned frequently. It is more expensive to do major fixes after a tenant leaves than to keep an office professionally cleaned and well-maintained. While you don't plan to fight much for this, you'd like to get an office cleaning policy of biweeky cleanings.
Should you and the prospective tenant fail to reach an agreement, you will lease the office to Dr. R. S. Townsend, a psychiatrist whom you met at the country club. Dr. Townsend has offered you an okay deal. You plan to pursue this opportunity unless you are able to get most of what you want in your upcoming negotiation.