Commercial Real Estate RFPs (Request for Proposal)

When searching to lease commercial space, you’ll need to be able to compare and contrast each of your available opportunities.

That’s where a Request for Proposal (RFP) can come in handy.

This form, similar to a letter of intent, is a template “questionnaire,” if you will, that landlords respond to with further information on a site for potential users.

RFPs are often submitted by tenants that are leasing space, but could also be used in a for-sale commercial condo scenario, too.

Comparing Potential Deals

The RFP gives the user a simple snapshot to compare each opportunity on an “apples to apples” basis.

This document may have some “requirements” for the tenant, such as the size of the space, and can also include “offerings” from a landlord to see what concessions each landlord is willing to give to land that user.

While RFPs cover everything from tenant information to ADA accessibility, some aspects of the proposal will be objective and some subjective, which can cause difficulty for a tenant when comparing opportunities.

However, once all RFPs have been responded to, the user may begin a comparison of the proposals.

What is an RFP Used For?

Requests for Proposals lay out the aspects of the deal that are important to a tenant early on in the “exploration” stage of lease negotiations.

RFPs are similar to letters of intent (LOIs) in the sense that if the terms in the RFP cannot be agreed upon, there’s simply no reason for moving on to a much more in-depth lease document.

The purpose of RFPs is to:

• Give the user an idea of where the market is so that they make the most educated decision for their use

• Highlight the user’s position and bring attention to the aspects of the deal that are critical in order to move forward

• Highlight the landlord’s position and any / all concessions and terms that could possibly be agreed upon

• Set a base document for which lease / sale negotiations will occur

Commonly Found Clauses in an RFP

Requests for Proposal will vary depending on the user, the type of business, location, and much more.

However, there are a few boilerplate clauses that the majority of users will need.

Here are the most commonly found clauses addressed in an RFP.

Tenant Information

When opening up the conversation, tenants should give the landlord information on who they are and what they do.

Not only will this establish credibility for the user, but it will also help the landlord better understand what kind of tenant is looking to take their space.

I typically recommend our clients include:

• Marketing materials

• Brand packages

• Websites

• Social handles

Spacial Requirements

Pretty straightforward - how much space the tenant will need and how the space may need to be laid out for the tenant’s use.

Some user’s have very specific requirements for their workflow, so if the user needs a reception area, 3 offices, a conference, and a kitchen, that needs to be made clear on the front end.

While the landlord may not necessarily have a space that fits those needs perfectly, they could better address that in the Tenant Improvements section later on.

Common Area Factor (CAF)

Not all space will be completely independent of common areas, which means the user may be paying on a rentable vs. usable square footage basis.

It’s important that the user knows what the common area factor is.

Common areas are the spaces utilized by all tenants, such as:

• Hallways

• Restrooms

• Elevators

• Amenity centers

• And others

Users will pay their pro rata share of this space.

Proposed Use

Here, the user will lay out their proposed use of the space.

Some buildings simply may not be able to accommodate various uses because of exclusive restrictions, parking requirements, zoning, etc.

This clause will bring to light whether or not the space may accommodate the user’s business.

Rental Rate and Rent Bumps

This section lays out how much the tenant will be paying in rent.

Often, users will propose their own rental rate here, if the rental rates are shared by the landlord, or may be stated as “most competitive rental terms” to the landlord.

The user will get an idea of how much rent the landlord would like to see, how the lease will be structured (NNN, FSG, MG), and by how much the rent will increase annually, every five years, or if at all.

lease term

How long will the lease be?

Some tenants will prefer 3 years while others prefer 10 at a minimum.

Having an idea of how long the lease term is proposed will help the landlord fully understand what they’re negotiating.

In my experience, longer terms mean more concessions for an end-user.

Rent Abatement or Free Rent Period

The rent abatement period is a “free rent” period that allows the tenant to occupy the space before having to pay any rent.

During this time, tenants are often build out the space, installing any FF&E necessary to operate their business, setting up furniture, training staff, and anything else they need to get done prior to opening for business.

Some landlords may require users to pay for the operating expenses of the property during this time while others may not, so it’s important to clarify:

• The duration of the free rent period

• What expenses / rents will need to be paid by the user (if any)

• Any triggers that would end the rent abatement period, such as user’s opening for business

Tenant improvements and Build Out

Tenant improvements are a very important aspect of the RFP.

The TI package will help the user understand how much the landlord is willing to put toward the renovation or build out of the user’s space.

Often, the spaces are not a perfect fit for each tenant, so they will likely have some sort of construction aspect.

This build out could be as simple as new paint and carpet or could extend all the way to a full build out from a cold dark shell.

TI is often expressed in a dollars per square foot basis.

Landlords may give the tenant improvements allowance to a tenant to handle their own build out or may opt to turnkey the suite for the tenant.

Renewal Options

Renewal options give the user the opportunity to extend their lease for a set period of time once the original lease term is coming to an end.

If a tenant wishes to have renewal options, they will need:

• The number of renewal options

• How many years each renewal option will be

• The rental rate for each of those renewal options (which could also be stated as “then market rates”)

• The window of time in which a user may exercise these options

Expansion / Contraction options

If a user is experiencing or planning on significant growth, they may be hesitant to sign longer term leases since they’ll likely have to move spaces to accommodate the team.

However, expansion options allow the tenant to move to a larger space within the property if they choose to do so.

In some scenarios, a landlord may be required to hold the space off-market for that tenant, which is unlikely to happen.

Most commonly, the tenant will be given a first right of refusal on any space coming available that could potentially accommodate their expansion.

These clauses may work on the inverse, as well, if a tenant’s business is decreasing and they want to contract the amount of space they occupy.

Existing Lease Buyout

Does the user have a current lease they’re looking to exit?

If they’re not willing to wait until the end of the existing lease term, they could request that the new landlord pay to buy them out of their existing lease.

The landlord could approach this in a couple ways, including a cash buyout to the user’s current landlord or a free rent period during the duration of the user’s current lease so that the user isn’t paying rent twice.

If the tenant doesn’t have an existing lease, this section would be omitted.

Location within the Property

Certain users will have very specific location requirements.

The restaurant user is going to want to be on a prominent corner where they can capture visibility and make the most of window space.

When submitted an RFP, this user would want to be very specific in which locations could or couldn’t work for them.

Office users may want the highest available space in the building to take advantage of the better views.

Operating expenses, Stops, and Caps

Users need to be aware of any operating expenses, operating expense stops, and any caps on the operating expenses that will be passed on to them.

These expenses will vary, depending on the lease structure, and can fluctuate from year to year.

The user should investigate the operating expenses to ensure that OpEx is being handled properly since they’ll be responsible for those costs.

Expenses stops and caps will also help keep the operating expenses from expanding too much within a calendar year and can halt the tenant’s responsibility in certain situations.

Infrastructure requirements

Some tenants have specific infrastructural requirements, such as increase electrical capacity, server and IT rooms, fiber, and more.

This section of the RFP will make the landlord aware of those requirements, which could determine whether or not the tenant will be able to occupy the space.

Space planning and Design

How is the space currently laid out?

If the space isn’t a best fit for the incoming user, they can ask for the landlord to handle the space planning and design of the space.

However, this design will be a collaboration between the landlord and the user since the build out will affect the landlord’s property and the tenant’s business.

Moving expenses

Will the user be moving from their current location?

It’s not uncommon to request that the new landlord pay for moving expenses.

While it doesn’t always happen, it certainly doesn’t hurt to ask, especially if the landlord sees the new user as a good use for their property.

Early Termination / Buyout

Some users have economic metrics or other reasons to want to terminate a lease early.

This section will pre-determine whether or not the landlord will permit an early termination or lease buyout, how much the buyout would cost the user, and how much notice they must give to the landlord.

In some cases, landlords will have the user repay any and all expenses for the buildout, commissions, legal, etc. in addition to the buyout fee.

Holdover Rights

A holdover period occurs when the tenant stays in the space beyond their original lease term.

Users may holdover for multiple reasons, such as a delay in the relocation to their new space, an inability to find a new location, or if the user is unsure on whether they want to stay or move.

These rights will determine how the user’s occupancy after the lease term is over will be handled.

Parking

What are the user’s parking requirements?

This section will show how much capacity the property has for parking for the user’s employees, customers, and equipment.

If the user would like to have any assigned parking or has specific parking requirements, like needing the leave delivery trucks overnight, that will be made clear here.

Whether the parking is free or charged will also be determined here.

Signage

Some users have very specific signage requirements and they can make or break a deal for them.

Landlords will often do what they can to accommodate where possible, but sometimes the signage is already taken by another group.

Location, colors and building standards, and costs (if any) of the signage will be worked out here.

security and Access

Security and access are very important for users, especially if they work multiple shifts or odd hours and weekends.

The type of security and how security is handled will be addressed in this section.

Tenant’s access to the property should also be noted, since some buildings may have doors that automatically lock and HVAC systems that shut off after-hours.

Users will need to know what the “overtime” charges are, if applicable.

Subleasing / Assignment

All tenants want the ability to sublease or assign their lease in a worst-case scenario.

Landlords typically don’t allow either the subleasing or assignment without their prior written consent, since they’ll be inheriting a new tenant.

This section will cover what they landlord would like to see in an incoming sublessee / assignee and how the user may go about this process.

Exclusive Use

Many users want the exclusive right to operate their type of business within the premises.

Essentially, this right means they are the only one of that type of business that may open and operate within the premises - no competitors!

Some businesses may request a specific exclusive use, such as a hair salon requesting exclusives on blowouts, in addition to their exclusive hair salon use so that another type of business may not have blowouts as an ancillary aspect of their business operations.

Ownership Information

Just like the landlord wants information on the incoming user, the user will want information on the ownership.

How do they operate? How many other properties do they own? Are they local? How long will it typically take to get a response to any requests?

The financial capacity of the landlord may also be of concern to the user in case of a downturn in the economy.

HVAC

This section determines what they HVAC responsibilities are for the space.

How will the costs be divided - is the landlord responsible, tenant responsible, or will they share some sort of responsibility for the units?

Users should also ask whether or not they will have access to their own unit so they can control the thermostat and what the expense caps will be, if any, on the maintenance and replacement of the units.

Janitorial Services

Most office-type environments will offer in-suite and / or common area janitorial services for the building.

How often will the space be cleaned? How is trash handled? What will the janitors actually be responsible for cleaning within the user’s suite?

Building Amenities

Does the building have any amenities for the tenants’ use?

In addition to lobbies and reception areas, buildings may offer tenants storage, bike racks, cafeterias, etc.

When comparing potential opportunities, amenities can often sway a user.

Miscellaneous Concessions

Sure, you want to get the best rental rates.

And it doesn’t hurt to have tenant improvements and rent abatement, too.

But users can also ask landlords for any other miscellaneous concessions that they’re willing to grant in order to land that user in their property.

Less Common Clauses in an RFP

So, we’ve covered the most common, boilerplate clauses.

Some users, however, will have specific requests that suit their needs.

Here are a few less common, though not completely uncommon, RFP clauses.

ADA Compliance

What is the building’s current ADA status?

If it isn’t compliant, which many aren’t since they were built before the ADA Act, who will be responsible for bringing it up to code, if necessary?

Many structures are grandfathered in and won’t need ADA compliance, but some users may have a customer base or funding that requires it.

Governmental incentives

Are there municipal and economic incentive packages being offered?

These packages are often granted to the whales relocating into a city, such as Amazon, and aren’t widely available for typical businesses.

These government incentives can make the difference between whether a corporation relocates its headquarters to one city and state or another.

Tenant Relocation

Landlords will sometimes want the right to relocate tenants in the building in case a larger entity comes along looking to take a significant chunk of the space.

Relocation clauses will dictate where, if at all, the tenant may be relocated, how the relocation will be handled, what expenses the landlord will be responsible for covering, and any other specific requests from the user.

Environmental

Depending on the type of property and the user’s business, environmental status could be a crucial deal point.

The user may want to investigate the building to determine if the age, condition, materials, or any pre-existing structures (like buried gas tanks) may affect the user’s utilization of the premises.

Property Management

The property management company, if any, will be heavily involved in the day to day operations of the property.

The user will want to know who the management company is, how they handle requests and work orders, who their point of contact will be, and more.

Refurbishment and Improvements Package

If they tenant is planning on signing a long-term lease, they may want to pre-negotiate a refurbishment and improvements package.

This package may be as simple as new paint and carpet upon the user’s exercising of a renewal option or at a certain point in time during the lease term so that the space feels new and fresh.

About The Author:

Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors as a board member for the Real Estate Investors of Nashville.