The Final Steps of the Lease Process: What to Expect After Submitting Your LOI

No matter your industry or area of business, you know one thing by now: a deal isn’t done until the ink is dry. If you’re working toward a new office space, the complexity involved in exploring, touring, negotiating, and finally getting to the point of making a decision is unmatched. Whether you’re relocating, expanding, renewing an existing lease, or making a major redesign of your current home, your broker has taken every step toward offering the best terms on your behalf based on market conditions and your company’s leverage against a landlord. Now’s the time to complete the deal and get things finalized. 

For most commercial real estate transactions, you’ll want to work through a commercial real estate broker to help facilitate the search and negotiation process before presenting a letter of intent (LOI) to the landlord, which should be the final step before signing a contract on a new space. But there’s much to know about the murky middle ground between an LOI and putting pen to paper. 

Next Steps: Finalizing the Leasing Process

There are several steps you’ll need to perform before signing any legally-binding documentation related to leasing a commercial real estate space. Here’s where to start:

Preparing Your Lease Documentation

You’ll want to ensure your financials, business plan, and leasing documentation is secure and finalized before submitting a letter of intent and moving forward with the leasing process. There are multiple factors included in this, not limited to:

Letter of Intent

While it’s not a legally binding agreement, signing a letter of intent shows both parties that you’re tentatively agreed upon specific lease terms and ready to move forward in the leasing process. 

Lease Documentation 

Having a legal professional experienced in the commercial real estate world is a critical aspect of any lease agreement negotiation. Before signing anything that could be seen as legally binding, you’ll want your own legal counsel to review and negotiate any potential pitfalls on your behalf. Even when terms, clauses, or amendments are proposed on either side, you’ll want counsel to review the entire document for changes before making a decision. 

As a tenant, your counsel’s responsibility will be focused around mitigating risk. Whether it’s during the negotiation phase, throughout the length of the lease agreement, or upon exiting or amending an existing agreement, you’ll want to bring in legal help to ensure your interests are accounted for. Adding to clauses, amending, deleting or removing, or renegotiating existing clauses are standard for the lease negotiation process, as are negotiating toward step-down clauses.

Step-down clauses can be a common ground between difficult or restrictive clauses on the part of the tenant and protecting the landlord’s interests. For instance, some lease agreements, especially if the tenant is a small business with an unproven track record over a long period of time, require personal liability guarantees, but this requirement is commonly negotiated down to a certain maximum dollar amount during a set period of time. 

Design/Buildout Specifications

  • Development, Approval, and Request for Proposal (RFP)

Before moving forward on any changes to the property, you’ll want to source a talented and capable project manager and designer. Once the design plans are underway, you’ll want to inform this team on the goals and desired outcomes of your project. 

Outside of any structural changes you’ll be needing, you should document and assess furniture, finishings, and minor touches to present the final costs to the landlord and city authorities and obtain permits necessary to complete the construction itself. 

Finally, you’ll want to start the bidding process to secure contractors. The more detailed you are in the scope, goals, materials needed, and finishes you can provide, the more accurate your potential contractors will be in their bidding process and therefore help you avoid headaches down the road. 

  • Bid Review and Analysis

Once you’ve submitted documentation to contractors, permitting authorities, and the landlord, you’ll want to organize a bid review team in order to analyze and weigh each bid before making a final decision. Before this process begins, however, it’s helpful to agree on an internal criteria for bids to streamline the decision-making process. Everything from timeline to budget should be on the table, but the finer details regarding subcontractors, liability insurance, and permitting need to be included in the conversation. 

  • Contract Administration and Tenant Improvement

Now comes the time to approve and finalize all contractors, subcontractors, suppliers, and bids. You’ll want to keep a close eye on their progress to avoid unforeseen overruns and delays, so building in a regularly scheduled meeting with all stakeholders is a good idea to ensure things run smoothly. 

Lastly, holding tenant improvement quality/cost control audits throughout the build out process will help your team ensure your goals are met within budget and in a timely manner. 

  • Project Completion and Tenant Occupation

The final stage of the process involves overseeing final details, navigating bureaucracies, managing close-out inspections, and signing off on the new construction. You’ll want to secure a Code of Compliance certificate, run a cost reporting analysis for the project, and audit the total budget of the project compared to the bid. A contractor’s defect liability will only last so long, so checking to ensure the project has reached its completion with all of your goals achieved, it’s time to do a final inspection and ensure the work is completed. 

With legally-binding agreements as complex as a commercial real estate lease agreement, it’s common to experience residual issues relating to the deal long after the paperwork is signed. That’s why it’s  important to keep your team on-task and focused on achieving your common goal – and keeping your tenant broker and legal team abreast of any developments before, during, and after the ink is dry. 

 

John is the VP of Sales at OfficeSpace.com where he leads broker relations and sales. Prior to being VP of Sales, he was the Regional  Director for the company. John has over 25 years of experience working in the commercial real estate industry. Before OfficeSpace.com, John was a commercial real estate broker for the Norman Company in Seattle, WA.