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PURCHASING AND LEASING

Paying too much office rent? Try these 7 rent-cutters

Can the partners live with less space?

After payroll, office space is the firm’s second highest expense, in most cases eating up from 7% to 10% of the revenues.

With the bite that big, every office needs to look for ways to cut the office cost.

Here are some good ways to do just that. And along with them are some lease negotiation factors the firm can use.

1 The same size office for everybody

The most significant savings comes from the obvious. Get rid of the unnecessary space. The most effective way to do that is to use the same size office for all the attorneys – partners and associates alike.

While tradition says the partners get larger offices, the same-size approach has enormous advantages.

It gives flexibility. When a new attorney comes in, any open office will suffice. And when a partner retires, the office is suitable for whoever needs it.

It helps with recruiting because equal offices tell newcomers the partners do not have inflated egos and are probably easy to work with.

But the real value is the savings. One-size-for-all offices can reduce the space costs by as much as 10%.

Count it out. Suppose there are 35 partners and 15 associates with the partners’ offices measuring 15 x 20 or 300 square feet and the associates’ offices 15 x 15 or 225 square feet. In total, the partners are taking up 10,500 square feet and the associates 3,375 square feet.

Make all the offices 15 x 15 and the firm has just lost 75 square feet per partner for a total reduction of 2,625 square feet. At a conservative $30 per square foot, that’s an annual savings of $78,750, and that adds up year after year. Over the life of a 10-year lease, that’s a whopping savings of $787,500. And the bigger the firm, the greater the savings.

The firm can still make partners’ offices distinguishable from the associates’ offices. Just give the partners the offices with the better view and put in more expensive furniture, carpet and wall finishes.

2 Just one big conference room

Another space and money saver is to cluster the conference rooms. Instead of having several conference rooms, have just one large one and put in moveable partitions. That gives the firm all the small rooms it needs without having to devote space to them.

3 A team suite for the of-counsels

There’s more space savings if the firm has several of-counsel attorneys who don’t come into the office every day. Use a team approach. Put all those offices in the same area. Then, instead of allocating an entire office to someone who’s only there three times a week, have an office for every two of-counsel attorneys. The arrangement is a common one. It’s referred to as an attorney suite.

4 Look around for cheap storage

Now look around at what the firm is paying for storage space. Despite the trend toward paperless offices firms still tend to be paper intensive and may not realize how much they are paying for storage. Instead of keeping all the files in the expensive office area, take advantage of the building’s low grade rental space. If the firm is paying $50 a square foot for that ocean view, first floor or basement space might be half that because it’s unattractive and hard to lease.

Renting space there can free up space for new attorneys. Or the firm may be able to reduce its more expensive upstairs square footage.

Keep the storage factor in mind when looking for a new building. If one site has an unattractive space available at a discounted rate, it can tip the scales in favor of that building.

5 Extend the lease and negotiate

There can be yet more savings from signing an extended lease. Landlords want long leases because they want the income continuity and they are often willing to take a hit in cash flow to get it. By signing a longer lease, the firm may well be able to negotiate a reduction in the office costs as well as a higher allotment for tenant improvements.

That’s a good option to consider when the partners are comfortable in the space and plan to stay there for an extended period.

Start the negotiations a few years before the lease renewal date, because landlords start looking for income stability well in advance of that deadline.

As to how much savings to try to negotiate, it is not unreasonable to get as much as a 20 per cent reduction in rent in addition to money for tenant improvements in exchange for an extended lease. If the firm is paying $35 per square foot, for example, don’t hesitate to ask for $30 per square foot plus improvements.

Expect the landlord to be willing to talk. The property owner will be facing downtime in getting the space rented again and a new tenant will create expenses in building out the space.

6 Flexibility is an essential

Then there’s flexibility to consider. When signing a new lease, make sure it provides for both growth and downsizing.

That’s essential for a law form, because firms are always subject to adding new attorneys or to seeing groups of attorneys leave. The business should drive the real estate needs, not the other way around.

Make sure the lease gives the firm first shot at any space that becomes available in the building. That way, the firm has the option of taking over any space before it goes on the open market.

Without the flexibility, growth may mean the firm has to go to the expense of moving to another building. Conversely the lease should allow for a contraction and a termination option, or the ability to contract out of an identified space. For example, it may allow the firm to abandon a certain percentage of the space after so many years with a small penalty.

That’s an important safety valve. Supposes the firm loses a practice group that uses 5,000 square feet of space. Without the provision it could get stuck paying for the empty space.

7 Two caveats on new office space

There are also points to look for when shopping for new office space.

Evaluate two elements before signing a lease. They are simple items, but they too often get overlooked.

First, is there full-time security? The building should have a 24-hour security guard in the lobby and a 24-hour roaming guard in the parking area. For a law firm that is a must because attorneys work late hours. Both the building and parking areas have to be safe after hours for attorneys and staff.

Second, what types of tenants are allowed in the building? The lease should specify what businesses the building will accept. A law firm has to maintain a professional image and the wrong type of tenants can destroy that. A firm does not want schools, government agencies, call centers or mom and pop grocery stores moving in beside it.


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