The process of moving from an old office to a new office.

By John Lakes

Time to renew the lease again – but this time the old office just won’t do. This time it is time to move.

Our law firm has just gone through the process, and we have had a crash course in “Commercial Leasing 101” – something the CLE will not teach you and something for which the Law Society will not give you educational credits.

We thought that other lawyers might benefit from our newly-acquired and soon-to-be-forgotten knowledge. Here then, is a summary of the most important things we learned so far in this process.

PREPARE A LIST OF YOUR REQUIREMENTS:
If you don’t know where you’re going, you will likely end up somewhere else.

The requirements for our new premises included:

1. More space.
2. Natural light.
3. Secure location (not ground floor).
4. Visibility from the street.
5. Lots of parking (hopefully free).
6. A fully accessible building (especially for wheelchairs).
7. Close to banks.
8. Close to key bus lines (in our case, the West Van Crosstown bus to Capilano U).
9. Other professionals in the building.

LOCATION, LOCATION, LOCATION:
Options give you power. Be prepared to consider new neighbourhoods and new types of buildings in which to hang out your shingle.

When we started, we confined our search to a narrow area. Our real estate agent persuaded us to look further afield, and our new location is not where we expected to move. Unfortunately, there was only one potential location within our preferred area that met our requirements. The Landlord probably knew this, and thought they were the only game in town. They negotiated with us as if we had no alternate location. They were soon very surprised to discover that we had signed a lease for premises in a non-traditional office setting elsewhere.

HIRE A COMMERCIAL REAL ESTATE AGENT:
The old proverb that reminds us that “he who acts as his own lawyer has a fool for a client” also applies to those who act as their own commercial real estate agents. Commercial real estate agents are (usually) experienced professionals who have learned the practical side of their business so you don’t have to. Best of all, the Landlord usually pays the agent’s commission, so you get their services for free.

Before you hire your commercial real estate agent, consider the following:

1. Does the agent know the local commercial market? An honest agent who primarily sells residential homes should tell you they are not the right agent.
2. Does the agent act mainly for the local Landlords? They may not be the best agent for a tenant.
3. Have your own agent. Do not let an agent “double end” the transaction.
4. If you don’t know the agent, ask for references.

SELL YOURSELF AS A POTENTIAL TENANT:
When negotiating a lease with a new Landlord you should strive to convince the Landlord you would be a great tenant. Let the Landlord know how many years you have been in business, paying rent.

Some Landlords do, and all Landlords should, like lawyers because:

1. Lawyers are dull and boring tenants.
2. Lawyer’s offices are open during reasonable hours (even if the lawyers work all night).
3. Noxious fumes and loud noises are not usually emitted from law offices.
4. Lawyers pay their rent when due. If they don’t the Landlord can complain to the Law Society.

LEASEHOLD IMPROVEMENTS:
Our newfound knowledge on this topic can be expressed as answers to the following three simple questions:

1. How much do you need?
   1. Meet as soon as possible with a knowledgeable contractor to discuss the improvements you need for your new premises and to obtain a quote for the costs.
   2. Better yet, obtain two quotes.
2. How much of that will the Landlord pay for?
   1. Show the estimates to the Landlord in hopes that they will pay the full costs of the leasehold improvements.
   2. While the Landlord might not agree to pay for all the improvements in the first round on your negotiation, they might agree to make substantial contribution to them, measured in cost per square foot.
   3. Many Landlords will increase their contribution per square foot as negotiations proceed.
   4. The longer the term of your lease, the higher the quality (and the greater the cost) your improvements should be.
   5. The Landlord will probably not pay for any more improvements to the premises until you negotiate a new lease (10 years from now).
   6. If the Landlord is not going to pay for all your improvements (which they probably are not) you need to consider where the rest of the funds will come from – the bank? Your firm? Both?
3. When will the Landlord pay you?
   1. Find out whether the Landlord will pay their part of the costs of the improvements by instalments, or in a lump sum (likely at the end of the project).
   2. If the Landlord is paying by instalments, make sure the receipt of instalments from the Landlord are co-ordinated with your obligations to pay your contractor.
   3. If the Landlord is not going to pay their part of the costs of improvements until the occupancy permit has been issued, then you will have to finance the cost of the improvements until the Landlord pays their contribution.

PRENEGOTIATION TASKS:
Before you negotiate the Lease:

1. Decide how much you are willing to pay, the amount of space you require, the term you wish and any other special requirements you need as a tenant.
2. Inspect the premises and the immediate neighbourhood.
3. Determine who the other tenants in the building are (or will soon be).
4. Check zoning laws, municipal by-laws and strata by-laws (if any).
5. Research the property taxes and utility charges for the property.
6. Talk to your clients about the potential new location. Their opinions matter.
7. Talk to your staff and your spouses. Their opinions also matter.
8. Determine who else may be interested in the space, and how much they are willing to pay for rent.
9. Find out who the Landlord is and whether they are a professional Landlord.
10. Try to find out how long the premises have been vacant and (hence) how badly the Landlord wishes to lease them.

NEGOTIATION TOPICS:
Some of the topics to cover in your negotiation:

1. The term of the lease.
2. The rent.
3. The additional costs. Obtain a budget if possible.
4. The Landlord’s contribution to improvements.
5. The schedule of payment of leasehold improvements.
6. The amount of the deposit.
7. The possession date.
8. The fixturing (rent-free) period.
9. The actual rental area. Areas are measured according to the Building Owners Management Association (BOMA). You shall be paying rent for BOTH your actual rented area and your share of the common areas of the building, such as hallways, the building lobby, washrooms, the general parking and utility room. The “mark-up” is usually between 15 per cent to 30 per cent of your monthly rent.
10. The right of renewal.
11. Parking.
12. The usage of the premises.
13. Special rules and restrictions.
14. Signage.
15. Separate meters for utilities such as hydro, natural gas and water. You do not want to subsidise the electricity for the 24-hour restaurant or the water for the produce store.
16. Time to approve the standard lease.

STANDARD LEASE:
Make sure you read the Standard Lease. While for lawyers this should be obvious, remember that many buildings have mixed uses and therefore provisions that might apply to the 24-hour restaurant or the produce store probably do not apply to your law office and should be deleted.

TO BE CONTINUED…
Stay tuned for Part 2, where we discuss topics like:

1. Negotiating with your contractor.
2. The actual construction of the new premises.
3. The move.
4. Setting up your new office.
5. Notifying your clients and the general public of your new location.
6. Holding your opening party.

This article was published in the August 2010 issue of BarTalk. © 2010 The Canadian Bar Association. All rights reserved.