5 Things to Consider in Your Next Commercial Office Lease

You find yourself at a most critical juncture of the entire office leasing experience. You have secured a tenant representation broker, toured office space, gotten through the proposal period and are now staring at a complex office lease of over 25 pages.

The first and most critical thing you need to do is hire a commercial real estate attorney with office lease experience. Your commercial real estate broker is not an attorney and cannot advise you on the office lease language and its ramifications. As commercial agents we do however see what is common in the marketplace around office leases and where common ground can be found between both parties. Below is a short list of things to watch out for that may not seem paramount at the time, but can be very critical to you and your business over the long haul.

  1. Relocation Clause. Something to consider while negotiating your office lease is to delete or withdrawal any relocation clauses. The worst thing that can happen to any Tenant is being down as a business. If you must take on a relocation clause within your lease be mindful of all costs associated with a move and make sure the Landlord is responsible for all those costs.

  1. Pass Through Expenses. Most office leases are negotiated on a GROSS rent schedule, however, from time-to-time you will come across leases in office that are Net of operating expenses or utilities. In case of a NNN lease, be sure to get rights to audit the books at least once per year. Also, it never hurts to ask for a cap on controllable expenses as well. We can’t control government taxes or snow removal, but over the years I have seen landlords inflate their management fees. Try to cap those at a fair market rate of 3-5% minimum.

  1. Right of First Refusal. Every lease should come with standard first rights to refuse contiguous space that comes available. If you are outgrowing your current space it is always great to know that if the space directly next door comes available you can grow into that space with limited costs or disrupt to your business.

  1. Sublease and Assignment. Every business needs to keep in mind their options for exit strategy, especially when things are going well – not when things are going poorly. Assignment and subletting are two potential options for you to get out of your lease liability. Subletting allows you to play landlord and charge your rent to a new tenant. Assignment is the ability to assign your lease if you sell your business or are part of a buyout. Be careful of landlords who try to limit you on what types of businesses you can assign or sublet too. Tenants also are not going to want to commit to any large fees or fines associated with a landlord’s approval.

  1. Other Important Items. Some other important items to keep in mind are around providing for subordination to third parties around Landlord liens, exclusion or capital improvements from compliance laws and pass-through expenses, provide for reasonable time limits in case of restoration after a loss and leave yourself the ability to terminate the lease if the landlord fails to provide you with essential services.

The idea behind a lease negotiation is to find common ground between a tenant and landlord by negotiating a fair and equitable contract between both parties. Both parties should have the same responsibility and liability throughout the contract. Be sure to find a great commercial agent and office lease attorney. With a strong leasing team at your disposal, you will ensure the future success of you and your company!

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