choycepeterson.com | Soft Market Negotiation

"Choyce Peterson says they provide clients with experience, integrity, effort and intelligence, and they certainly do, but I’d add another bullet. They work in partnership with the client."

- Roger Berman, Principal of Bloom & Streit -

"In the midst of a complex negotiation with a landlord, I realized I was into a process that required more expertise than I had in my skillset,"

- Kathleen Shelton-Smith, Chairman, Renaissance Capital Corp. -

"I give Choyce Peterson high marks for negotiating with a high degree of integrity in the best interests of the tenants they represent."

- Paul D’Amico, Chief Operating Officer for Triple Point Technology -

"Our Choyce Peterson Principal, is of great importance to me because he knows our business as well as his."

- Cynthia Poggiogalle, Senior Manager, Worldwide Real Estate of Pepsi Beverages Company -

"John Hannigan guided us through all the negotiations with the landlord and nudged us, as needed, to keep things moving along. I was confident he was on top of all the details, so I could concentrate on the core aspects of our insurance business."

- John Martin, C.E.O. of Martin Rosner Eleftherion -

"We were very particular about our requirements and John put in a lot of effort to ensure that we weren’t wasting our time touring offices that would not measure up to our standards."

- Mark McCall, Chief Financial Officer for Lime Rock Partners -

"My father had worked with John Hannigan several years ago and was very pleased. The firm is a class act, and we were happy to call on them again."

- John Martin, C.E.O. of Martin Rosner Eleftherion -

"This is the third time Choyce Peterson has helped us secure space to accommodate our rapid expansion. Their experience makes them very knowledgeable about the available space and we’re confident we can rely on their judgment and focus our attention on growing our business."

- Kurt Strumpf, Chief Operating Officer for eNR Services -

"We looked at quite a few satisfactory locations, and they did a great job of helping us narrow down our options; the new space is exactly what we were looking for."

- Kurt Strumpf, Chief Operating Officer for eNR Services -

"I was pleased with the amount of effort and information Alan and John were able to gather, enabling us to explore all of the possibilities and make sure we were taking the right space for the right price."

- Paul D’Amico, Chief Operating Officer for Triple Point Technology -

"John put in a lot of effort for us, which is obvious in the results – we realized quite substantial savings with this new lease package."

- John Martin, C.E.O. of Martin Rosner Eleftherion -

"It was a pleasure to work with John and Steve again. Due to our long term partnership, they played a crucial role in assessing our needs and requirements for our new office space."

- Jim Bretschneider, Managing Director of Columbus IT Partner USA -

"John’s experience was a great source of information for us. He gave us a sense of the going rental rates for other buildings in the area and helped us to understand and avoid the pitfalls of doing a deal like this."

- John Martin, C.E.O. of Martin Rosner Eleftherion -

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Choyce Tips: April 2011: Soft Market Negotiation

As we try to stay abreast with market changes and their impact on lease language, we want to pass along items to help tenants negotiate during this soft economy.

In this issue, we wish to address some nuances about operating expenses. In the past, we have talked about the validity of having operating expenses “grossed up,” whereby the landlord estimates the operating expenses as if the building were fully occupied. In this way, he fairly determines the increased cost to be passed along to tenants. We previously recommended both the base year and subsequent lease years should be “grossed up” to 95% occupancy. However, more recently we learned about two additional factors:

1. A building should always be “grossed up” to 100% occupancy. If it is only “grossed up” to 95% for the base year, it gives the landlord a built-in profit opportunity regardless of increased costs merely by ensuring the building is more than 95% occupied in subsequent years. Therefore, the “grossed up” clause should always require estimates based on 100% occupancy.

2. This “100% occupancy” should also be based on all tenants paying rent, particularly in the base year. If a tenant in a substantial amount of space received free rent in the early portion of the lease term, the total operating expenses would probably be understated because management fees are typically calculated as a percentage of gross rents, again building in an automatic profit merely by requiring all tenants begin paying rent in a subsequent year.