Form-of-the-week: Tenant Lease Worksheet – Form 555

To efficiently negotiate a nonresidential lease arrangement on behalf of a tenant, a leasing agent needs to possess a high level of knowledge and expertise regarding the terms of a lease. However, negotiating the best terms for the tenant requires proper due diligence by the agent to fully identify the tenant’s intentions and expectations for leasing a property.

When gathering information from a tenant, a diligent agent prepares a tenant lease worksheet to assess the tenant’s space requirements and, with financial statements, the financial condition of the tenant’s business. [See first tuesday Form 555]

A leasing agent is to investigate and confirm why the tenant wants to move if they are to understand the tenant’s needs. By uncovering the precise reasons for moving, the agent is well equipped to find a suitable new location and premises, or negotiate a renewal or extension of the tenant’s existing lease.

Know the tenant’s business projections

When a prospective tenant is starting a new business, the leasing agent must get information on the tenant’s business projections at the outset. Keep in mind, a tenant’s new business projections may be overly optimistic. The tenant may want space that is simply too large or in too expensive a location. The tenant may have to settle for incubator space in a less desirable location which accepts “start-up” business tenants.

Conversely, a tenant may underestimate the potential future growth of their business. The premises they favor may be too small to accommodate their growth, hindering later attempts to expand. The tenant will be forced to relocate again prematurely. To ensure room for future growth, the leasing agent considers:

  • lease options;
  • the right of first refusal on additional space; or
  • a lease cancellation or buyout provision to vacate the premises.

Also, over projection of the potential income of a business under a percentage-rent lease will reduce the landlord’s projected rental income. Unless the leasing agent considers the space needs and gross income of the tenant, the leasing agent’s long-term service to either the landlord or tenant is limited. Thus, the leasing agent must develop a system to match up the right landlord with the right tenant.

Using a tenant lease worksheet

During the information gathering phase, the leasing agent representing a tenant prepares a tenant lease worksheet to determining the tenant’s motivation, needs and financial status. [See first tuesday Form 555]

The worksheet covers three key areas the leasing agent must consider and analyze:

  1. the tenant’s current lease conditions and existing space;
  2. the tenant’s current and future needs for leased space; and
  3. the tenant’s financial condition and creditworthiness.

Regarding the tenant’s existing space, the leasing agent will determine:

  • the type of building;
  • the square footage;
  • the monthly operating and utility costs; and
  • the tenant improvements (TIs) and trade fixtures installed.

Regarding the tenant’s future needs for leased space, the leasing agent analyzes the tenant’s:

  • current square footage needs;
  • future square footage needs;
  • phone, utilities, computer and information technology (IT) needs;
  • heating and air conditioning requirements;
  • parking, docking, turn-around and shipping requirements;
  • access to freeways, airports and other public transportation;
  • access to civic, financial, legal, governmental or other “downtown” facilities;
  • response time for police and fire departments;
  • access to housing areas; and
  • any needs peculiar to the tenant.

Some tenants may focus on specific geographic locations in the business market or population centers. Others may need the lowest rent possible, regardless of location. Use of the tenant lease worksheet will narrow down the tenant’s requirements and focus agent’s search.

The tenant lease worksheet also provides for the tenant’s short term (3-5 years) and long term (5-10 years) business goals. This information allows an experienced agent make recommendations based on the future needs of the business when properly analyzing the information.

In addition, the tenant lease worksheet includes a section reviewing the tenant’s current lease terms on space now occupied, and a breakdown of the lease terms sought.

A necessary review of the tenant’s current lease includes:

  • the expiration date;
  • monthly rent and period adjustments and assessments;
  • the obligation to continue to occupy the premises;
  • the obligation to restore the premises or remove fixtures;
  • options to extend or renew the lease or buy the premises;
  • the tenant’s ability to assign or sublease; and
  • the amount of the security deposit.

These facts give the leasing agent the proper information needed to review and confirm with the tenant their rights and obligations under their present lease. When representing the tenant, the leasing agent points out and explains, to the best of their ability, their knowledge of the beneficial or detrimental effect any lease provisions have on the tenant. This analysis of information establishes the parameters and limitations of the lease sought, providing for recommendations to be made by the agent based on these facts.

Information gathering is a critical step for proper client representation. The tenant lease worksheet is a necessary tool when representing a client efficiently and professionally.