Part 1 – AI can help a commercial tenant negotiate a lease
This is part 1 of a 2-part series of insights on how AI can help commercial tenants with their lease negotiations. Part 2 focuses on AI limitations in relation to lease negotiations.
“While AI can significantly enhance data analysis and strategy development in negotiation, the human element remains crucial for building trust, understanding nuances, and adapting to complex situations, as true negotiation often requires creativity and intuition that current AI systems lack.” - Chat GPT
AI can be a powerful ally for a tenant when negotiating a commercial lease, but it is important to understand what AI can help with and what AI cannot help with. This discernment enables the tenant to combine instant access to internet knowledge with human intuition and judgement, thereby increasing the probability of negotiating a tenant-friendly lease arrangement that supports the tenant’s business into the future
How can AI help the tenant negotiate a tenant-friendly lease arrangement?
“The idea that machines can’t do things humans can is a pure myth.” - Marvin Minsky
Any commercial tenant or advisor who ignores AI’s potential to assist with lease negotiations will be increasingly disadvantaged as landlords and other tenants become more skilled at using AI. Tenants start in the outside lane when it comes to lease negotiations, while landlords start in the inside lane. Leveraging AI can reduce the structural negotiation disadvantages that tenants have due to tenant fragmentation, limited access to key leasing information, and the fact that lease negotiation is a core competence for landlords.
Here are some ways in which AI can help a tenant achieve more tenant-friendly outcomes:
- Access to key information—Landlords have far more access than tenants to real estate data, market trends, lease negotiation strategies, and the actual landing points for lease arrangements. When tenants make the right AI queries, they can mitigate their information access disadvantage to some extent, become better informed, and be better placed to negotiate.
- Lease negotiation strategy – AI tools can suggest negotiation strategies based on historical data, industry trends, and the tenant’s future business requirements and risks. This can include AI-generated advice on location, premises characteristics, and lease terms relating to occupancy cost, risk, flexibility, obligations, and guarantees. The aim is to use AI to better inform and document the tenant’s long-term accommodation strategy (at the portfolio level and for each transaction) to mitigate the risk of misalignment between accommodation commitments and future business requirements.
- Lease negotiation checkpoints – Leases and the agreements that often precede lease formalisation have their own language, with terms that tend to be more landlord-friendly than tenant-friendly. Landlord-friendly lease norms are a function of the industry structure as most solicitor work emanates from landlords, and most tenant advisors are employed by conflicted multinational leasing agency firms that get more than ninety percent of their income from landlords. AI can be trained to highlight terms that present risks to the tenant, suggesting alternative expressions that are more protective of the tenant’s business and suggesting negotiating tactics to achieve a more tenant-friendly arrangement.
- Risk management—Each of the above three benefits of AI for tenant lease negotiations reduces tenant risk. AI queries and tools can be used to specifically focus on uncertain future business requirements and risks to highlight specific aspects of the lease arrangement. For example, the pandemic demonstrated just how exposed hospitality tenants are to binding lease commitments despite impaired use of the lease premises. A hospitality tenant negotiating a new lease can use AI to access information to support a negotiation for rent abatement tied to impaired utilisation.
Concluding comment
“The most difficult thing in any negotiation, almost, is making sure that you strip it of the emotion and deal with the facts” - Howard Baker
Leveraging AI is essential for tenants to get the best outcomes from their lease negotiations. Asking the right questions and applying the right tools are the keys to getting the best possible AI support for the tenant. In part 2, we will focus on AI limitations in tenant-side lease negotiations.
Who is LPC, and how we help futureproof accommodation arrangements
LPC is a conflict-free advisor to commercial tenants across Australia and New Zealand. We facilitate strategic review of accommodation strategies, represent occupiers to secure best-fit accommodation arrangements, provide lease management services to multi-site occupiers, and oversee client fit-out and relocation. Contact us for help with your accommodation strategy review.
