The top 5 mistakes tenants make
Landlords, tenants, lawyers, fit-out contractors and agents must communicate effectively
From wasting time to wasting money, landlords detail mistakes commercial tenants make. As part of their latest publication for Auckland, Office Options, Barfoot & Thompson Commercial held an impromptu survey of landlords about the five most common mistakes by tenants. Office Options showcases 32 office properties from Manukau to Albany and Barfoots asked the landlords surveyed to outline the five main things they feel tenants get wrong when leasing office space. The following five errors accounting for 92 per cent of the overall responses.
5Approvals
Landlords feel tenants often look for space without a clear understanding of their needs, entering into negotiations only to engage key stakeholders for approvals at the 11th hour. One landlord said, “This wastes time and money while frustrating agents and landlords.”
Barfoot & Thompson commercial office leasing specialist Lorne Somerville says it’s vital tenants understand internal approval processes and engage key decision makers early: “There is nothing worse than landlords, tenants, lawyers, fitout contractors and agents putting in considerable work to agree commercial terms — only to have an approval process take much longer than anticipated or for approval to never be obtained.”
4TimingIt is clear landlords feel tenants do not understand the timeframes required for the design, consent and construction process in the current market.
Somerville says that, depending on the size of the tenancy and the condition of the premises, the process of designing a fit-out, obtaining building consent, finding a contractor to complete the works and build the fit-out can easily take three, if not six months.
“Often tenants have spent considerable time reviewing options in the market to identify the right space. Typically, if you have over 50 staff, you need at least 12 months to complete all the required steps. The trick is to not run out of time,” he says.
3Fit-out
Tenants often don’t understand how much space they need, say landlords. They often lease space that is right for today but fails to allow for enough expansion or contraction as their needs change over the term of lease. In today’s rapidly changing business environment it is difficult to determine head count over 2-3 years, let alone 6 or even 12 years – the typical length of a longer term lease.
“Tenants need to spend time up front,” says Somerville, “to determine what they need now and in the future.
2LegalsLandlords feel tenants often do not understand the terms and conditions they have agreed to in the Deed of Lease. One landlord said tenants are “effectively putting the lease in the bottom drawer and forgetting about their lease terms”.
Somerville says many tenants are highly focused on incentives and new fit-out at the expense of review mechanisms and costs to de-fit to open plan layouts at the lease expiry. Often the key decision makers will not even work for the company at the lease expiry. Tenants need a system to ensure they are on top of rent review dates, and when they need to give notice to renew a lease. The system needs to work irrespective of the people involved and allow for the key decision-makers to change over the term of the lease.
“When it comes to reinstatement, the time and cost spent on obtaining a premises condition report at the lease commencement will pay significant dividends at the lease expiry. This is common sense, yet so many tenants have a ‘she’ll be right’ attitude and then realise they have a substantial cost and legal obligation at the lease expiry when they want to move.”
1MoneyAccounting for 30 per cent of the responses was “financials”. One landlord put it simply: “Tenants need to pay more rent to achieve their dreams.”
Somerville says most tenants desire a nice office space to help attract and retain staff but there can be significant costs in moving to new office premises. Some landlords said tenants often focus too much on reducing costs.
“The old adage holds true — you get what you pay for,” Somerville says.