After a lengthy search, you’ve finally found the perfect new office space. It’s so great that, in fact, you’re not sure if you should lease or purchase the building. To put you in control, negotiate in your lease options to buy the building if you decide you want it. You can also stop someone else from purchasing it as well. These options, listed below, give you a measure of control and let you avoid the costs and responsibilities of ownership if you are not yet ready to take them on.
Option to Buy
This negotiated structure gives you the most power. It’s a predetermined right to buy the property. Leases vary but are generally set up as lease-to-own transactions where you may pay extra funds towards the principal and have a set period of time to purchase, usually at a preset price.
A more flexible structure is when you have a purchase option that doesn’t require up front costs or a direct commitment. Under these terms, your landlord agrees to give you the right to purchase the building. The lease terms will likely include an expiration date and have a prenegotiated price or a pre-set method for determining the price. Under these lease terms you aren’t obligated to purchase if you don’t want to and you aren’t spending any money that you could end up losing.
Right Of First Refusal
If you can’t successfully negotiate lease terms that include a direct option to buy, try to negotiate a right of first refusal. This clause says that if your landlord decides to sell the building and gets an offer, he’s obligated to give you the chance to match the offer before selling to the other buyer. If you can match its price and terms, you get to buy the building instead of the buyer.
Rights of first refusal are better than nothing but can be problematic for all parties. The owner and the buyer know that the buyer’s offer could be snatched away by you. For you, the problem with the right of first refusal is that you only get to exercise it if the owner chooses to sell. The owner remains in control.
Right of First Negotiation
Your least powerful option, but easiest to get, is the right of first negotiation. When you include this language in your lease, your landlord is obligated to come to you before starting the sales process. You get first dibs at negotiating a deal. If you can’t make a deal work, the owner is free to go ahead with marketing and selling the building to whoever he wants, even if the buyer winds up paying less than you were willing to. These terms leave you with the least level of control.
If you need help negotiating any commercial lease, consider engaging howardcommercial. We have the expertise you need. Send us an email doug@howardcommercial.net or give us a call at 314-821-0085.
