Like most real estate deals, finalizing a commercial real estate lease agreement is a lengthy process that in some cases doesn’t result in the tenant moving into their desired space. It’s very important to keep in mind that when a prospective tenant and landlord agree to terms in a contract, although it seems promising, it doesn’t translate to a done deal.
Reasons for deals falling apart can vary, coming from not just the tenant’s or the landlord’s side, but also from third parties involved in the deal. Below, we’re sharing the 7 most common reasons why commercial real estate deals fall through. Being aware of them might increase your chance to go through with your own lease and get the NYC office space that you want.
1. Tenant’s remorse
This usually occurs when tenants are smaller companies that don’t really know what exactly they’re after. It’s difficult for some business owners to make a decision, especially when they have several options to choose from. They agree to a certain space and soon after, they change their mind and wish to pursue some other offer. So, the deal falls through. In some cases, the reason is related to finances, specifically, tenants might realize they cannot afford to pay the security deposit. And again, the deal falls to pieces. Planning ahead and figuring out your budget before starting to look at spaces can eliminate the possibility for this type of situation to happen.
2. Landlord’s remorse
It’s a pretty rare occurrence, but sometimes landlords can change their minds about a tenant, as well. While it’s not exactly a sign of professionalism, it can happen, as not all landlords are the same. Typically, retail spaces face this issue more often than other types of commercial properties, and the main reason in such a case is that the landlord might have found another tenant, either a more prestigious brand or a business that’s willing to pay a little extra.
3. An overly complicated lease
Typically, the first step in arranging a lease agreement is to negotiate business terms. Once that is agreed upon, the landlord issues a lease, but in New York City, these papers can be pretty extensive, comprising around 30 to 50 pages written in specific lingo, which is not very common or easy to understand for most people. This can be daunting to many tenants and, out of self-preservation, they will decide to opt out of the agreement. In some cases, these pages can contain hidden expenses and other fine-line stipulations, which only an experienced commercial broker can catch.
4. Sub-par tenant representation
One common reason why a commercial real estate deal falls apart is related to not hiring the right people to get the job done. It’s essential to have on your side a team of professionals specialized in the property type you’re looking for. If you hire an attorney or a broker specialized in residential properties to deal with the ins and outs of a commercial deal, he or she might not ask the right questions or view the transaction from the right perspective. You don’t go to a cardiologist to check your teeth, even if he or she is your friend or family, so why would you hire a real estate attorney specialized in residential properties to help you with your commercial lease? Make sure you enlist the help of a qualified, licensed professional with experience in commercial and office space deals, who knows the market well and has a proven record of success.
5. The space becomes available, but the existing tenant is still in place
The only way you can spare yourself the trouble with this scenario is to reject such a space in the first place. Specifically, if you’re told that the current tenant of the space you wish to move into has yet to vacate the premise, keep looking for alternative spaces. Unless the market is tight and available space is rare, try to steer away from ambiguous terms as much as possible. Don’t hold a grudge against the landlord, as they might not (yet) be aware of the tenant’s intentions. The tenant might have told the landlord they will move out, but for whatever reason, they haven’t yet. They might also be experiencing problems with the new space they planned on moving into, and this can keep them stranded for longer than anticipated in the current unit, the one that you had your eye on.
6. You’ve subleased your existing space, but the sublessee gets cold feet
Another possible scenario is that in which you, already a tenant in an office space, have outgrown its size, but you still have remaining term on your lease. So, as a sublessor, you look for a sublessee to occupy your space for the remaining term, so that you can move to a larger space that fits your operations. But if the sublessee, for whatever reason, gets cold feet, the sublease cannot be executed. Consequently, even though you’ve been negotiating on a new larger space, you won’t be able to move out as you have responsibility for your current office and (probably) can’t afford to pay double rent.
7. The deal is contingent on the landlord releasing a tenant
This point is directly related to the one above. If the landlord doesn’t agree to let a tenant out via an early lease termination, this can prevent that tenant from signing a new lease.
In the video below, Metro Manhattan Principal Broker Alan Rosinsky shares his insights on the topic and explains why agreement on business terms is no guarantee that a commercial real estate lease will ultimately be signed.
Are you thinking of setting up your business in a convenient location in Manhattan, and are looking to lease space in a modern building offering state-of-the-art amenities? Then reach out to us and we will show you worthwhile space situated right in the heart of New York City. To learn about available office space, call Metro Manhattan Office Space at (212) 444-2241 or email us at firstname.lastname@example.org.