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THE ART OF NEGOTIATION - PART I

A Tenant's Perspective
The Request For Proposal ("RFP")
For our purpose here, we will simply say that the negotiation process begins with a comprehensive RFP. Of course, the actual RFP can only be developed after the tenant has developed a thorough understanding of its needs and qualified properties have been identified. As such, the property tour has taken place and optimally, at least three suitable properties have been identified.
In a sale transaction, this is the point when an offer would normally be submitted. In the process of acquiring leased space, the offer is replaced by an RFP. The really fun part is that, unlike offers to purchase, RFPís can be submitted to multiple properties at the same time because the tenant is merely soliciting a proposal from the landlord. This should be thought of as the tenantís wish list and becomes a critical component of the negotiation.
The landlord responses will give the tenant a great deal of market knowledge.
A competitive atmosphere will have been created between landlords.
At least one property will usually express a profound desire to consummate the transaction and when this occurs, the tenantís negotiating position is strengthened.
Negotiations that have been well documented in the RFP - which I will explain later in more detail - can help establish the intent of the parties in any future dispute.
Always, always, alwaysÖ request a copy of the Standard Form Lease!
I repeat, an important component of the RFP is to request a copy of the landlordís Standard Form Lease agreement. This document should be thought of as the landlordís wish list, which is subject to revision in a variety of important respects. After its thorough review, subsequent submissions of the RFP (weíll talk about this in more detail in Part II) can incorporate the tenantís requested modifications as well as any suggested addendum language.
Other considerations when developing the RFP include:
Speak to ALL of the tenantís needs and core requirements. Included are such things as expansion (i.e. right of first refusal), renewal options, etc. It is much more difficult and many times impossible to obtain the optimum result when an important consideration is put on the table late in the negotiation.
Insert legitimate items that are ďthrow away issuesĒ for the tenant and define the other areas of flexibility prior to the start negotiation. Similarly, most landlords will have pre-determined fallback positions for many lease clauses and the desirability of the tenant will dictate their willingness to make modifications or deletions in their standard form lease.
The content of the RFP should be consistent with market conditions and take into account what is attainable by this particular tenant in the current marketplace. (i.e. larger requirements with fortune 500 credit will normally be able to ask for more than a smaller tenant with local credit). It is, of course, necessary to push the boundaries as a strategy in the negotiation but the tenantís requests for concessions shouldnít be viewed as outlandish by the landlord unless it is a very strong tenant market (i.e. high vacancy / low absorption).
I should note that over the years, we have received hundreds of high quality, well thought out tenant RFPís. We have taken the very best language, from the perspective of the tenant, and compiled comprehensive RFPís for both office and industrial space requirements. These sample RFPís are included with the course so that you can quickly construct an RFP which has been customized to properly reflect your clientís needs and core requirements.
The Landlordís Response
When acting as the landlordís representative, I have always attempted to mirror the tenantís RFP in the proposal, even if I was only able to reference such-and-such paragraph in the standard form lease. Iím sorry to say that this is not the norm. Often, the tenant will have presented something like a thirty point RFP and will receive a nine-point response in return. While there may be inadvertent omissions, at other times it will be by design in that the landlord just doesnít want to address the issue, such as when a response would put the building a competitive disadvantage.
As a result, it is important to employ a simple and effective method for a tenant and/or the tenantís broker to track the progress made on deal points while also making sure that all the original points outlined in the RFP eventually get addressed. So, here is where we get to the part about the well-documented negotiation that I touched on earlier. One method that we have found to be effective is illustrated below. It has the added benefit of also documenting the negotiation. This is particularly useful in any instance where it becomes important to fully understand the intent of the parties, such as when an attorney is asked to draft lease language accurately reflecting the negotiated business points of the transaction. Again, documenting the intent of the parties can also prove useful if a dispute develops during the term of the lease.
When the landlordís proposal (response to the RFP) is received, insert the response made to each point, word for word using bold face type, directly under the original corresponding point in the RFP. The use of bold face type helps to distinguish the landlordís responses. Under any original point in the RFP which has failed to elicit a response from the landlord, the tenant should note in bold letters ďNo Response ReceivedĒ. The tenant then adds his further responses (or indication of acceptance) just below the landlordís bolded responses, once again using regular type, and returns the document to the landlord for his review.
Tip - Many offices now have some sort of scanner and optical recognition software which will allow you to easily cut and past the landlordís response into the original RFP.
A clean and simple procedure. The tenantís request Ö landlordís response Ö tenantís response or indication of acceptance Ö landlordís further response or indication of acceptance. The alternating standard/bold and No Response format continues until a consensus has been reached on each deal point. Refer to the sample below:
Corporate Identification: Please state how the building could accommodate corporate identification and signage and address responsibility for the costs of such identification. Please include information pertaining to any municipal codes affecting signage on your building.
The landlord will provide, at no cost to the tenant, one (1) listing in the building directory located in the lobby and one (1) building standard sign on the wall adjacent to the front entry door of the suite identifying the tenant and suite number. A limited number of additional listings can be made available in the building directory but the cost of said listing(s) would be the responsibility of the tenant. There is no exterior building signage available.
Accepted

All of the above, and much more, is covered in the course.  If you would like to get information on the course, click here for complete details.  The bottom line of all this is that you MUST be able to negotiate competently.  Don't just rely on an unstructured approach and think that this is what will achieve the desired result... It won't.  You will lose track of an important point or fail to address a critical need.  The negotiation needs to remain focused... so it is very important that you do this, otherwise your negotiation is destined for failure.
Time and time again people are convinced they can negotiate effectively by the seat of their pants... When I have the opportunity to review the results of these transactions, I can see that there was not enough attention paid to the various issues of significance that surrounded these lease negotiations.  So just remember...
There can never be too many issues addressed in the RFP and it can never be too long, but it can quickly become an ineffectual tool if not thoughtfully drafted and used correctly!



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