Negotiating a lease can be very complex and with all the commercial real estate and law jargon, if this is not your area of expertise, it can be especially difficult to know what to look for. We highly recommend using a Commercial Real Estate broker and attorney to assist when negotiating a commercial office lease. Below is a list of some specific areas to pay close attention to that can affect your overall lease terms, budget and options on the space moving forward.
Operating Expense Calculations: Understand all expenses associated with your office space prior to signing the lease. Make sure everything is clearly addressed in the lease regarding HVAC, Common Area Maintenance Fees, Taxes and Tenant electricity payments and whether the Tenant or Landlord is responsible for these expenses.
Tenant Improvement Allowance: Pay attention to your budget for building out the space prior to lease negotiations. While negotiating the letter of intent, you should understand how much the Landlord is willing to contribute and more specifically if there are any restrictions on this money. For example, Landlord’s will sometimes specify that the Tenant Improvement Allowance can only go towards “hard costs” meaning actual construction and not “soft costs” i.e. moving expenses, furniture, wiring, etc.
Renewal Options/Terms: Be aware of all notification dates for any renewal options. It is often stated how many months in advance you must notify the landlord that you would like to renew your lease. Also be aware of any hidden automatic renewals that could be written into the lease to prevent this from happening as you will have no control of the terms.
Commencement Date: Something to pay attention to is the lease vs rent commencement date. If you are having work done to the space prior to move-in, you need to determine with the architect the approximate build-out time. Once you have discussed this timeline, you can set an estimated lease commencement date with the landlord during negotiations, however be clear in the lease that rent commencement will occur upon occupancy of the space. You do not want to be paying for space you are not occupying, given there are often delays in construction timelines this can be somewhat unpredictable.