Signing a lease for a new office space is a big decision for any company. It is a major expense for any organization and a lot of the time the deck is stacked against you. As such, there are a number of things to consider before signing on the dotted line.
1. The Actual Size of the Space
Someone considering a new lease should always be aware of the actual “rentable” space available. Total square footage includes storage spaces, utility spaces, walls, etc. On top of this, 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 actually use all of those feet. 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.
2. Operating Expenses
Leases include an operating expenses clause that allows the landlord to recover standard out-of-pocket costs associated with running a building. But that’s all it should do and the expenses should directly correspond to the benefits you enjoy by occupying the space. Make sure to understand any exclusions afforded to you under this clause of the lease and always be mindful of what these charges are for when you’re paying your rent. It’s okay to insist upon a precise and limited definition of what charges are to be included under this clause of your lease.
3. Rent Increases
Tenants are often responsible for increased building expenses and property taxes, so the lease amount you pay for your first month may not be what you are paying for the last. These additional 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 years 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.
4. Real Estate Taxes
Real estate taxes are the legal responsibility of the landlord. However, like the operating expenses clause mentioned above, the real estate tax clause is another place some landlords hide hidden fees, so always be aware of what you actually owe under these clauses. 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.
5. 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 have a discussion with your tenant rep and the landlord about what all is expected of each party with regards to 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.
6. Escapes and Extensions
If your lease has no provisions in it that mention subleasing or assignment, you are free to do either. However, most leases will include specific clauses dealing with these, 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 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.
7. 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 not a very advantageous position to be in from a tenant’s perspective. You can request that dispute resolution terms be added to the lease that clearly define the method of dispute resolution and the responsibilities of the various parties affected. It’s best for you to decide what this is with your tenant rep and landlord. Whatever terms you ultimately agree to, it is imperative that you follow them to the letter in the event of any issues in order 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.