Finding commercial office space can be quite a challenge. While there’s certainly real estate available, finding the right office space that satisfies your business needs, fits your business vibe, is conveniently located, offers your business the flexibility to grow and which falls within your budget doesn’t necessarily come easy. And, even if you should find that “perfect” or “close to perfect” office space, you’ll still need to negotiate fair lease terms and work out the language in the final lease agreement before it’s a done deal. You don’t want to blindly sign on the dotted line!
First, negotiate the lease terms with the landlord. If you aren’t a strong negotiator or don’t feel you have the experience to negotiate, seek an experienced and qualified real estate broker who specializes in working for and in the interest of tenants. They should have insight into the real estate market and relationships with buildings and landlords to help you find the right space and negotiate, in good faith, fair terms with the various buildings and landlords.
Keep in mind that there are various factors which may help your negotiating power including, but not limited to: prominence of your business, size and financial position of your business, amount of commercial real estate space you intend on leasing and the length of the lease term (a longer term lease may offer you stronger negotiating power over a shorter term lease).
Once you’ve negotiated the lease terms to a point which are reasonably fair and agreeable, the landlord will have their legal counsel draw up the lease documents. Be sure to read the commercial lease agreement and all the applicable attachments, amendments, riders, guaranties and related documents thoroughly. Be sure that the lease terms and conditions, responsibilities and obligations of both the tenant and landlord are clearly spelled out and align with what has been agreed to during the lease negotiations. These include, but are not limited to: the start/end date of the lease, the lease term (number of years), the lease renewal and termination provisions, the date landlord shall deliver possession of the premises to the tenant, the date in which tenant shall surrender the premises to the landlord, base rent and any applicable rent abatement(s), additional fees and costs outside of the base rent (ex: cleaning, security, water/sprinkler), annual rent escalation (percent increase), proportionate share of property taxes and other applicable costs/expenses beyond the base year, the base year to be used for calculating property taxes and other applicable costs/expenses beyond the base year, electricity costs (ex: if the space is individually metered), HVAC (ex: if HVAC is tenant controlled – annual maintenance agreement requirement, who is responsible for repair/replacement of major components like compressor/condenser or replacement of the unit(s) in the event of a failure during the lease term? the landlord’s certification that the existing HVAC unit is in good operating condition; if HVAC is not tenant controlled, availability and costs for after-hours and weekend use), security deposit requirement, office space build out work and responsibilities, work to be performed by landlord, work to be performed by tenant (if work requires written approval by landlord), landlord responsibilities, tenant responsibilities, cost for building and office keys/key cards, covered and non-covered (a la carte) building services, commercial insurance requirement, “good guy” clause, etc. These are just some of the common items that typically appear in a commercial lease agreement which you should be on the lookout for and review carefully.
Even as an experienced business owner well-versed in negotiating contracts and agreements, it should go without saying that you should tap into and consult with a good real estate attorney who will thoroughly review the lease agreement and all the applicable attachments, amendments, riders, guaranties and related documents to make sure they are in order and contain the appropriate language to protect your interests. Let me be clear, having a good real estate attorney review the lease agreement does not mean that you should “pass the buck” and not exercise due diligence. YOU need to review the lease agreement thoroughly, make notes and consult with the real estate attorney so that you have a thorough understanding of what you are getting into before you sign and commit to the lease agreement. Don’t assume anything! Ask questions, get clarification and be sure you fully understand and are comfortable with the provisions of the agreement. Don’t think for a moment that any questions are stupid or silly. If it’s ambiguous, vague, unclear etc., get clear, definitive answers! Contracts and agreements often contain legalese which are difficult to fully comprehend and understand and may be vague and ambiguous.
Commercial leases are written for and inure to the benefit of the landlord. The objective is to try and get the lease terms to a point where the terms provide adequate protections, to the maximum extent possible, for you – the tenant. There may be several rounds of back-and-forth between you (and your legal counsel) and the landlord (and the landlord’s legal counsel) before you hash out the final language of the lease agreement so be patient, be thorough and exercise continued due diligence. This is one of those things where taking shortcuts will be more harmful than helpful. Don’t take shortcuts! Stick with best practices!
One final note . . . give yourself ample time to work through the process of lease negotiations and towards a final agreeable and acceptable lease agreement and whenever possible, have a backup plan. If you, with the advice of counsel, don’t feel comfortable with the lease terms and the landlord is not acting in good faith, don’t give in and don’t sign the lease agreement! Be prepared and willing to walk away! You don’t want to be stuck in an agreement for which you will ultimately regret!