Say what? Yeah, the title of this third Feasible Asks post reads like a text among teens but it’s about lease benefits in which you really want your licensed tenant-representing real estate broker to have experience and fluency.
At Calamos Real Estate, we offer a unique perspective: Our boutique firm is the developer and property manager of CityGate Centre, a 31-acre mixed-use community in Naperville that stands out in the market for being roughly 90 percent leased across office, retail and multi-family residential properties. As landlords ourselves, we know what tenant asks are feasible as we represent tenants leasing throughout DuPage County and the Greater Chicago Area.
In Part 1 of this series, we looked at rent abatement and escalation clauses and how each offers different advantages and in Part 2 we considered the importance of lease term on those advantages and in negotiating for improvements to the space for lease.
Today, in Part 3, we’re going to unscramble that alphabet soup in the title and tell you about some tenant safeguards you may want negotiated into your lease.
ROFO and ROFR
We’ve all heard of FOMO—fear of missing out. ROFO—right of first offer—and ROFR—right of first refusal are ways to be sure you don’t miss out on opportunities which may allow you to avoid moving costs if you outgrow your space.
As mentioned in Part 1 and Part 2, most landlords won’t accommodate every ask—even in a tenants’ market—and your broker needs to know your priorities to best advise and advocate for you. Understanding your business plan, revenue flow and other priorities will help your broker know what kinds of landlord concessions could offer the most help to you, while being sure to discuss those options with you and negotiate for them on your behalf.
What a ROFO is, isn’t and can do for you
Right of first offer—or ROFO—means you get the “first look” at leasing adjacent or nearby space in the building where you’re leasing—or even purchasing the building from your landlord if they are looking to sell. A ROFO may be part of your lease or a later-negotiated amendment.
A ROFO is not an obligation. Rather, it’s a risk-free opportunity to plan for future growth. Since you are free to decline when the ROFO-subject space becomes available, there is only advantage to having it in place.
If your growth plan doesn’t accelerate at the pace you expected—or if it accelerates in a different way, perhaps with satellite offices versus a growing HQ headcount—no obligation means no problem. On the other hand, ROFO could help you avoid a costly move should you outgrow your current space.
If you decline the ROFO opportunity when it becomes available, it frees the landlord to lease or sell to another party.
ROFR: How it differs
Right of first refusal is a “last look” triggered when your landlord receives a bona fide offer from a third party to lease or purchase available space or the building.
A ROFR grants you the opportunity to match the terms of a third-party offer before the space is leased or sold to the third party. If you choose to exercise this right, the landlord is obligated to provide you the same terms of the third-party offer.
There’s a bit of a gamble—the third-party offer might be more costly than what you might have negotiated at the ROFO stage. On the other hand, a lower third-party offer that is accepted might reduce the cost you would have paid if you exercised the ROFO.
Relax your FOMO with an experienced broker can relax your FOMO
There are so many factors that will influence lease negotiations and which of many possible asks and combinations of asks are truly feasible, and we’ve covered only a few in this series.
Having a licensed tenant-representing broker on your side, fluent in these factors and the pros and cons of each, can pay off many times over.
If you’re ready to speak with an Illinois Licensed Broker representing tenants, send us a message.
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