Negotiating and Signing an Office Lease
Now we come to the final step in leasing an office: negotiating and signing a lease.
I used to be surprised at how casually even smart business men regard their lease. Many never bother to read it. Some can't even find it.
This nonchalance is often the cause of future office occupation misery.
It's all too common, even among otherwise clever business people.
Don't be lease ignorant.
Here are a few things to get you in the know and to avoid future surprises.
A lease is a business document, pure and simple.
Every transaction in life goes smoother when both parties agree on the terms in advance. That's what your lease intends to do.This contract will describe your occupancy costs. If an expense is in the lease and there is a disagreement about whether you are liable and the dispute winds up in court, you will pay if the expense is spelled out in the lease. You won't pay if it's not.
Where You Stand
Tenants begin with a clear disadvantage. Your new landlord is doing her everyday job when she presents you with a lease. You, on the other hand, are performing a function that you might have never done or probably have not done in five years.
Your landlord is not likely to put her best offer on the table.
It's the Market Stupid
If you are operating in a tenant's market, meaning that there is lots of office space for lease and tenants are in high demand, then you are likely to be able to negotiate a lot of goodies.
Among these are getting your new landlord to pay your moving expenses, buying out your old lease, giving your many months of free rent and giving you huge building allowances.
It's only reasonable to have a real estate professional on your side who is in touch with the market and what concessions to ask for.
If office space is tight, it's a landlord's market and few if any concessions will be available.
Again, only a full time real estate professional will be able to assess the landlord's advantage and let you know where you stand.
Most of the time the market for office space lies in between advantage-tenant and advantage-landlord.
Never as simple as just paying the rent, occupancy costs can later become a nasty surprise to tenants.
Your lease should spell out what these costs are along with when you are expected to pay them. Beside rent, these might include common area maintenance (CAM), janitorial services for your space, taxes and insurance and others. There are no end to landlord expenses and her job is to pass on as many as possible to keep her business profitable.
But they need to be in the lease.
And you need to understand them before you sign the lease.
In some buildings the air conditioning equipment is within the tenant's space and the lease specifies that the tenant is responsible for maintaining it. You also might be required to do your own wiring by hiring a licensed electrician.
Read the lease carefully to discover exactly what your responsibilities are in maintaining the property and get an idea of what it's going to cost you.
There are all kinds of options that you might want in your lease. The most common is the option to renew at a certain rent at the expiration of the lease.
There are also options to downsize, to upsize, to get other space in the building when it becomes available. The landlord may have no problem offering some options and requiring a rent premium for others.
What About My Lawyer?
Consider what your lawyer is in a position to know?
Unless he has his ear to the ground listening for current changes in the office market, he's unlikely to be able to judge the lease's market-based benefits. Is the rent high or low? Are the expenses out of line? Are the options a good deal or not.
What your lawyer can do is tell how well the agreement is drafted to assure that your interests will stand up in court.
In my experience a good lawyer will sit down with his client, the tenant, and ask objective questions that he can generate from the lease itself.
Did you agree to pay $xx.xx per sq foot in rent?
Did you agree to an x% raise each year on January 1?
Did you agree to pay $xx.xx per foot each year?
Did you agree to pay an x% increase in expenses each year beginning January 1?
Did you agree to keep the air conditioner in good working order and have it inspected once each year?
And so forth.
You should be able to answer his questions affirmatively.
"Yes. I agreed to that."
If you can't answer in the affirmative, then that is the time to do something about it.
Read The Lease
What a dreary task! But not reading it can make things a lot drearier.
And for the sake of all that is holy, have a copy of the lease that you can lay your hands on.