What should an effective RFP include to ensure it opens doors to more meaningful and successful negotiations?
In Commercial Real estate an RFP (Request for Proposal) from a tenant's perspective, is a formal document that outlines specific requirements, but more so, requests that the landlord answer several questions pertaining to the premises, including concessions offered, what costs are included in the rent, Sublease clause, etc. The RFP is used to solicit proposals from landlords for available spaces that meet the tenant's requirement. The RFP is the first step in the negotiation process, so it is important to understand what should be included in any well written RFP. Below we have outlined the essential clauses within an RFP.
Premises: This will outline the size of your desired space and its location in the building. Landlords list square footage in terms of rental square feet (RSF) and not usable square feet (USF). It’s important to understand the difference between usable and rentable square feet. RSF includes the common area factor in the building. For example, if a tenant leases out 10,000 RSF with a common area factor of 20%, then the USF would be 8,000 SF in this specific instance.
Length of Term: In this section, identify a lease term that the company is comfortable with. The length of the term will have a significant impact on the economics of the deal. For example, the longer the term the more a tenant can expect back in concessions. In a sublease scenario, the sublease term would expire at the end of the master lease.
Lease Commencement Date: This will define the starting date of your lease. This may not kickstart your monthly rent depending on whether free rent is involved. For example, your lease commencement date is when a tenant can begin conducting everyday business operations out of that specific space. On the other hand, your rent commencement date would be the date in which the company is responsible for paying monthly rent, after the free rent period has concluded.
Base Rent: We outline the importance of economics and ask the landlord to define a rental rate based on the concessions the landlord is willing to offer.
Heating, Ventilation & Air Conditioning: This section asks the landlord to define the type of system(s) in place, maintenance history, after hour HVAC costs, and whether the tenant will be separately metered.
Tenant Improvements: This section is arguably one of the most important and heavily negotiated parts of an RFP. In this section we provide the landlord with as much information as we have at that time regarding the buildout and modifications desired by our client within the space. In turn, the landlord will outline which party will bear all or a portion of those associated costs. In addition, we have the landlord confirm that all MEP (mechanical, electrical, plumbing) systems, the roof, and all structural components that serve the premises shall be in good working order prior to the commencement of the lease.
Amenities: Here we ask the landlord to present a list of amenities available within the building or business park that is available for tenants’ use. Amenities that can include; underground parking, gym facilities, full service cafeterias, etc.
Security & Parking, Regarding the security clause, the landlord is asked to outline any security cameras in place, locks, key card access, alarms, etc. in place at the current building. For parking, every building has a parking ratio, but for example, there may times when there is a need for additional parking, so if that’s the case we want to make sure to include that in the RFP as well.
Renewal Option: It is always a recommendation to our clients to include a renewal clause within the RFP. From a tenants’ perspective, renewal options can be considered as the least advantageous deal they can sign from an economics standpoint. On the other hand, it provides a safety net for tenants. For example, if there is a vacant adjacent space within the building and a current tenant is looking to expand, that renewal option allows the existing tenant to stay within the space.
Assignment & Sublease: This is another clause that falls under significant importance during the leasing process. The landlord will need to provide several details, including when/if landlord consent is needed and what that process entails.
An RFP is the first initial step during the lease negotiation process when looking at a possible relocation. In terms of negotiating a renewal, typically, the landlord will provide a proposal without first receiving an RFP. The RFP is then followed up by a landlord’s proposal. One thing for tenants to keep in mind, nothing is binding in this process until a lease has been signed.
At WRA, we advise our clients to issue at least 2-3 RFPs. This approach creates a competitive environment among landlords, giving you considerable leverage in the market. Imagine a scenario where a landlord is aware that a tenant’s lease is nearing expiration, but the tenant hasn't engaged a representative or explored other market options. In such a case, the landlord has little motivation to present a competitive offer. By actively engaging in the market and demonstrating your willingness to consider other options, you signal to landlords that you’re seeking the best possible deal, compelling them to come forward with more attractive, competitive offers.
Having an experienced tenant representative on your side that fights for your best interests, while saving you time and money at no cost, is a no brainer. Don’t wait to pay attention to the company’s lease until it’s too late, call us today.