6. WHAT ARE THE OTHER NEGOTIATING POINTS?

Each of these are issues you should plan to discuss further with your broker and/or attorney to determine their importance for your situation.

Rent abatement or deferral
In a slow real estate market, landlords may offer a period of free and/or deferred rent either at the beginning of a lease term or spread over a longer period. Landlords may also waive rent during the construction period.

Options
You should negotiate options for additional space and lease renewal that match your agency's long range plans.

Other indirect financial concerns to consider before negotiations begin include:

The term of the lease
Most commercial leases run for five or ten years with an option to extend. While there may be an opportunity to lock-in a low rent, tenants should be cautious about leasing for too long a term, unless they can be certain about their space needs over time. As a nonprofit, you may need flexibility as your funding may change, or you may grow or shrink unexpectedly.

Lease liability
Landlords will want some form of collateral to cover their out-of-pocket expenditures for construction and brokerage commissions. They may seek full-term exposure of the agency's assets and/or personal guarantees of individuals associated with the agency, but agencies must avoid this. A security deposit should stand as the only asset available to the landlord.

Assignment and subletting
The right to assign a lease or sublet a space can be crucial to an organization's flexibility for future expansion, contraction or relocation. Recapture rights, notice provisions and the ability to recoup improvements and disposition costs have significant economic impact on a nonprofit's ability to dispose of excess space effectively. If the tenant needs to break the lease, these clauses require the payment of penalties including the unamortized cost of any capital improvements, the brokers fee, any free rent that was negotiated, and a certain additional amount of rent to allow the landlord to recoup any investment into the deal. These clauses must be carefully negotiated to allow you flexibility while balancing the rights of your landlord.

It is best to negotiate the most liberal rights possible with respect to assignment and subletting. Landlords will want to be able to approve of the general character and business of the subtenants, but the lease should not provide the landlord with veto power.

Possession, Occupancy and Rent Commencement
The date the tenant is legally entitled to the premises is the possession date. This date is dependent on the owner obtaining possession of the premises and, if relevant, completing specific work agreed to in the lease. Occupancy is when construction work on the tenant's space and common areas is substantially completed (tenant is able to occupy space and business can proceed). Rent commencement is negotiated as part of the total financial package. Additional months of free rent can be negotiated based on current market conditions.

Options
Options for additional space and perhaps options to cancel portions of the entire space are subjects for negotiation. Renewal options should also be discussed.

Compliance with the law.
The agency's legal exposure should be limited to items relating to its own specific installation, and the conduct of its business on the premises. You may want to review the building's Certificate of Occupancy to be sure that the agency's intended use is permitted.

Again, as with all things, there are no hard and fast rules in the commercial leasing business. It is possible that your organization may not confront all of the issues presented here, and it may encounter some not presented here. But hopefully this information will prepare you well for the journey of finding and negotiating a lease on an appropriate space for your organization.

Sources: David N. Lebenstein, Time Equities, Inc. and Arlene Wysong, Sylvan Lawrence Co.

© 2000 by the NONPROFIT FINANCE FUND

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