I hope everyone who is reading this is enjoying the summer and a more relaxed pace. It appears that I am as my last post was over 6 weeks ago. In that post, I wrote about selecting a short list of viable buildings to evaluate for an office space requirement. Today I will provide some thoughts on why it is important for tenants to utilize a thorough request for proposal (RFP) to begin the evaluation and negotiation of buildings on their short list.
Since verbal contracts are meaningless, it is important to have all major deal points reduced to writing as mutually agreed to by landlord and tenant. The governing document is the lease, which is the culmination of the negotiating process. The first step in this process is for a tenant to request a proposal from each building on their short list. The RFP is the foundation that allows the tenant to outline the specific terms they wish to evaluate from each building and enables the landlord to provide an initial proposal.
All RFPs should address basic economic terms, length of lease, tenant improvement allowance, etc. Depending on the size and complexity of the transaction, there is a variance on what additional deal points are considered significant. For example, on large transactions with significant build out requirements there are major economic and risk factors associated with who is controlling the construction process, the delivery date and condition of the premises as well as the lease commencement date. Often times there are major issues surrounding lease flexibility for growth or contraction of space size.
There are as many as 35-40 economic and non economic points that are negotiable and meaningful to both tenants and landlords. In our view (as a tenant advocate), it is important to negotiate these terms in a competitive context prior to selecting a building. How many of these points can be negotiated is dependent on the size and credit worthiness of the tenant along with supply/demand dynamics in the marketplace. It is important to understand these nuances since sending a landlord a 10 page RFP for a 10,000 square foot transaction may not get a response. On the other hand, sending a landlord a 3 page “basic terms” RFP for a 100,000 square foot transaction could be putting the tenant at a distinct disadvantage right out of the gate.
We have different forms of a RFP that we customize for our clients depending on the size and complexity of the transaction.