Even if you have a clear vision for your company and a smart strategic plan to help you get there, the future is unpredictable. The office space that’s ideal for your needs today could end up being a less-than-perfect fit before your lease expires. Making your office lease as flexible as possible is a way to hedge against this unpredictability. Here are a few of the ways that you can create a more flexible lease:
Consider a Shorter Term
“Short-term” lease is a relative term. For a tech startup it might mean
month-to-month. For an established law firm it might mean 3-5 years.
Short-term leases give companies greater flexibility to adjust to changing
business conditions. If you’re only locked into a lease for a “short” period
of time, you’re less likely to outgrow your space or end up with tons of
unused square footage. Understand, however, there is a cost to this
flexibility. Rental rates for short-term leases are often much higher,
landlord concessions in the form of free-rent and tenant improvement
allowances are lower and you’ll have less stability and security.
Introduce Termination and Contraction Options
A long-term lease becomes more flexible when you add termination and
contraction options to the agreement. A termination option gives you the
ability to terminate your lease prior to the contractual expiration date,
provided that you give your landlord predetermined notice and, in most
cases, pay a penalty. Contraction options allow you to surrender some of
your space before your lease is up. Obtaining these types of options will
depend on how large a tenant you are and how much leverage you
have. These are not popular with landlords.
Add Language That Gives You Room to Grow
If your business begins to boom and you need to take on more
employees, expansion options can help you avoid having to search out
space in another building. Expansion options require landlords to give
you a chance to take over space that becomes available during the
life of your lease and can include:
– Fixed Expansion Options. This language gives you the ability to
request a space or guarantees that you can expand within a certain
period of time or a specific point during your lease agreement. Again, the
size and leverage of the tenant will dictate the ability to obtain this type
– Right of First Offer. With this clause, a landlord must offer you any
newly available space before marketing it to third parties.
– First Right of Refusal. This clause requires landlords to give you the
chance to accept a deal that they’ve negotiated with a third party for a
specific space in the building.
Reserve the Right to Assign and Sublease
If your company needs to downsize or relocate prior to the end of your
lease term, subleasing and assignment clauses give you the ability to
lease all or portion of your space to a third party. These types of clauses
can help you avoid paying rent for space that you are not using.
Protect Yourself at the End of Your Lease
If you’re satisfied with your space at the end of your lease and feel that it
will continue to meet your needs in the future, renewal options will
ensure that you are able to remain there. Renewal options guarantee
that you will be given the opportunity to renew your lease, provided that
you notify your landlord by a given deadline.
Consider engaging howardcommercial
This is the most important tip by far: Don’t do this yourself. Even if your company is somewhat familiar with the market and rental negotiations, you will best be served by engaging an experienced commercial real estate advisory firm whose job it is to represent your best interests and help negotiate the most favorable terms.
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September 30, 2019
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