What To Consider Before You Sign a Corporate Lease
Signing a lease for a new office space, or a corporate office lease is a big decision for any company. Signing a lease is a major expense for any organization and the deck can be stacked against you, so there are several factors you have to weigh before you make any lasting decisions. To learn more about the Corporate Lease and Move Process, check out our Learning Center and Workscape Blogs pages.
Below are the items you should consider before you sign your corporate lease:
The “Actual” Size of the Space
Someone considering a new lease should always be aware that the square footage is not equal to the “actual” space available. The total square footage includes storage spaces, utility spaces, walls, etc.
Landlords often have their own ways of measuring the total usable space. While the lease may say a certain amount of square footage, you likely will not be able to use all of the space listed. It’s a good idea to have the space measured for yourself, so you have a better idea of your true cost per square foot.
Operating Expense Clause
Leases include an “operating expenses clause“ that allows the landlord to recover standard out-of-pocket costs associated with running a building.
As a tenant, you need to know that expenses should directly correspond to the benefits you enjoy by occupying the space. Before you sign a new lease, understand any exclusions afforded to you under this clause. Always be mindful of what these charges are for when you’re paying your rent, no matter the lease. It is an industry-standard to insist upon a precise and limited definition of what charges are to be included under this clause.
Rent Increases
Be aware that the lease amount you pay for your first month may not be what you are paying for the last. Tenants are often responsible for increased building expenses, property taxes, and more. Most of these charges are calculated annually based on the previous year’s expenses and will often begin being added to your lease in the second year.
If the building you are about to occupy has been operating for over a year, it’s a good idea to check the previous year’s expenses, to get an idea of what you’re in for. If your landlord instead indexes these charges, meaning they calculate increases independent of total expenses, request that the method of calculating these increases be included in your lease.
Real Estate Taxes
Real estate taxes are the legal responsibility of the landlord. However, the real estate tax clause is another place you may find unexpected fees that will increase the overall cost of the rent. Always be aware of what you actually owe under these clauses by reviewing your lease each year.
Your lease should protect you from the tax obligations of your landlord. It’s also a good idea to be aware of any special assessments or miscellaneous taxes associated with the area in which your leased property resides.
Alterations, Maintenance, and Repair
Make sure to note the specific definitions for terms like alterations, maintenance, repair, wear and tear, and the like in your lease, and who is ultimately responsible for each. It’s also a good idea to discuss with your tenant rep and the landlord about what is expected of each party about these things, so you have a better idea of where you stand and how you’ll be able to resolve issues such as these moving forward. You should never be made responsible for standard wear and tear on a building, as this is factored into the rent amount you already pay. Furthermore, you should be aware of any casualty clauses in your lease that would allow your landlord to terminate the lease early for issues you may have caused to the building itself.
Escapes and Extensions
Most leases will include specific clauses dealing with escapes, additions, or extensions, so it’s good to review the lease terms and make note of what you are and are not able to do in this regard. If your lease has no provisions in it that mention sub-leasing or assignment, you are free to do either
If the terms of the lease require approval by the landlord, make sure to have that approval process clearly defined, to avoid confusion later. Also, if the lease does not include a renewal clause, make sure to discuss terms for lease extensions with the landlord before signing.
Dispute Resolution
Leases often include terms that say in the event of a dispute, the tenant must pay first and then can take the landlord to court. This is because the dispute resolution terms are not in an advantageous position to be in from a tenant’s perspective.
You can request that dispute resolution terms be added to the lease. These terms clearly define the method of dispute resolution and the responsibilities of each party listed. You should decide with your tenant rep and landlord which terms to agree on.
Whatever terms are agreed to in the lease must be followed as written. You must follow them to the letter in the event of any issues to protect your company’s interests fully.
The information in this post comes from a Harvard Business Review article. For a more detailed breakdown of the aforementioned concerns, you can view the article here.