Real Estate Articles
Office Leases: Important Terms and Conditions
Written by Brent Pace for Gaebler Ventures
A good office location is only the beginning of renting your first office space. The lease negotiation itself will have many important twists and turns. Good legal counsel is always recommended. However, you should understand some of the important terms and conditions yourself. In this article we present some of those key terms and conditions that relate to office leases.
There are numerous lease clauses that you should be familiar with as an entrepreneur leasing office space for your company.
This article is no substitute for legal counsel. However, there are a few lease terms and conditions that are peculiar to retail space that you should be aware of in order to more effectively negotiate the lease for your office space.
As silly as it sounds, make sure that your exact premises is detailed in your lease including useable and rentable square footages as well as an exhibit with a drawing that shades in your leased premises. You would be surprised how often questions come up after the fact.
Term and Basic Annual Rent
Make sure your lease term and rent is spelled out clearly and succinctly. If possible make sure a detailed table is inserted into the lease with the rent schedule so that you don't have to make any calculations on your end. It may seem onerous, especially for a long term lease, but make this table a monthly table if possible to take away any guesswork on your payment schedule.
Your commencement date can be trickier than it sounds. If your space is being constructed or built-out it can be especially complicated. Landlord's like to have your commencement date structured as the earlier of a list of items. These items include: the date you take occupancy, the date your space is completed, or 90 days from lease signing.
Negotiate hard on this item. If construction is slow you could possibly end up paying for your space before it is completed. Pay close attention to this lease item to ensure that you don't pay rent until you are in your space.
Operating Costs (Basic Costs, Direct Costs, Estimated Costs)
Review this section of the lease carefully as well ensuring that you understand exactly how the operating costs are paid. It is helpful to enter an exhibit into the lease with a long list of operating and maintenance items and check marks next to the ones that are your responsibility to pay for as a tenant. This will help you avoid disagreements with the Landlord down the road. This applies only if you have a triple-net (NNN) or base year lease. Full service leases are the exception.
Use and Hours of Operation
Make sure that the lease specifically allows for the use you are leasing the space for. If you will be doing some light manufacturing in the space, make sure it is allowed. Similarly, if you are running a financial services firm and you have analysts covering the Asian or European markets, you might want to pay close attention to Hours of Operation. You don't want to have to pay extra to get your employees in the building and using the air conditioning during the wee hours of the morning.
Finally, pay attention to any and all termination clauses in the lease. Landlords will try to sneak in clauses to relocate your or terminate your lease in certain circumstances. Often these circumstances cater to redeveloping their property or servicing larger tenants. Watch these clauses carefully and make sure you don't give your Landlord too much power to get you out of the space during your lease term.
Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.
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