I’m glad you asked. Commercial real estate tenant representatives are licensed real estate professionals who perform site searches, narrow choices to review, suggest landlord concession approaches, negotiate letter of intent offers with landlords, limit occupancy costs, suggest business points to discuss during lease negotiations, and invite competing sites for a bidding contest if necessary.
Although the tenant rep has a fiduciary responsibility to act in the best interest of the tenant, he is paid through the landlord by splitting the built-in commission with the listing agent. So the tenant advantage is paid for by the landlord.
Here is how the tenant rep process works:
Tenants get assistance in analyzing space needs and showing how their business would benefit from changes in size and configuration of the business structure.
Sometimes it makes sense to stay in the current space or the same building. Even if there is an existing option to renew, a tenant rep can provide a summary of current market factors that may justify a reduction in rent rather than conforming to an automatic increase as defined by the lease in different economic times.
If a move is required, an independent search would include all available sites regardless of the landlord. Tenants get an unbiased exposure to choices that match their criteria, even those that may not be actively on the market.
Letters of intent cover the main business points to be negotiated in the lease agreement. In addition to the main business points there are other lease clauses that must be reviewed. Landlords frequently have one-sided language for lease clauses that are tilted against the tenant and need further negotiation in order to be acceptable. Particularly risky are standard clauses as defined by the landlord. The lease agreement is just as important to the tenant and may need revision to be acceptable.
Concessions, such as free rent and tenant improvement allowances, are important areas to consider in the lease negotiation process. Those and other contentious areas may require heavy-duty discussion to make the lease agreement satisfactory to the tenant. Tenant reps provide valuable assistance to reach the goal.
Finally, it is important to anticipate the future and protect the tenant from events that could cause harm if not covered in the lease agreement. Wording in the right to sublease clause may be important. Or, perhaps the landlords responsibility to rebuild after a hazardous event is too loose. Sometimes expenses landlords apply to operations should be capitalized and not passed on to the tenant. The lease language must be fair for the tenant.
In summary, tenant reps provide a valuable service by giving the tenant assistance in optimizing the business space for improved profitability and reducing downside risk for unknown calamity. These are some of the reasons to have a tenant representative on the tenant’s side before the commercial lease begins, during the negotiation phase, and after the lease ends.