As an office tenant representation specialist I think one of the greatest values I bring to the transaction for my client is office lease flexibility. During the negotiation process it is easy to concentrate on rental rate and lease term. These items are important but creating options for my client brings the best long term value.
Long Term Vs Short Term Leases
I have found that there are usually two types of office tenants looking for Dallas office space. The first category are new business or businesses that have concerns about the future of their business and they dislike long term commitments. The second category are established businesses with a successful track record. In most cases these business want to lock dow their rental rate for a longer period of time.
In either case it is in the best interest of the business to create as much office lease flexibility as possible. I am going to discuss a few of the areas that I have found beneficial to my clients. Clearly there are many more but these are good topics to start the discussion.
Renewal and Extension Options
A typical lease has an commencement date and and expiration date. These terms can be modified during the lease term if you negotiate renewal and extension options into your lease. In most cases you will need to notify the landlord within an agreed upon time period of your intention to renew or extend your lease.
Be sure to give some thought to the way the new rental rate will be determined when the option is exercised. Be careful of the definition of a market rental rate and how it is to be determined. In addition to the rental rate be sure to negotiate other important factors such as construction allowance and reseting the base year for operating expenses.
Sublease and Assignment Rights
Subleasing is often overlooked when a new lease is being executed. After all, you are interested in a new space and have no intention of moving out before the lease term expires. This is a major mistake. It is important to provide an easy way to sublease or assign the lease to another company.
When your company becomes successful and it is urged with another business it may be important to assign the lease to the new business. Another real scenario is that you may need to relocate the your business to another city and will no longer need the office space. However you may still have term on your office lease. In this case you will need the right to sublease the office space.
Option To Early Terminate
A right to sublease or assign a Dallas office space is usually not based upon a certain time. However the right to early terminate an office lease is usually set to occur within a certain timeline. For example a five year lease may allow the office tenant to terminate the lease at the end of the third year with a pre approved notification period an agreed upon termination penalty.
The one thing that is certain is change. When you first sign your new lease the space is exactly what you need at the time you move into the premises. If you are successful you may quickly outgrow your original space. If you are forced into a space that is to small for your operation you could restrain your companies grow. The way to avoid this disaster is to make certain you have the right to expand your space.
Right of First Offer
During an office space lease negotiation it is better to be the only option instead of one of several for the landlord to consider. So the right of first offer forces the landlord to present a space to the tenant first before they make any offer to another tenant. This may give the tenant the ability to lock in the space before the competition steps into the fray.
Right of First Refusal
Similar to the right of first offer but it is offered differently. After an offer has been made on an agreed upon space the landlord must offer the space to the tenant giving them the same terms and conditions being offered to another company. Usually the tenant will be notified and they will have a certain number of days to accept the terms and conditions offered to another company or reject the offer.
The wise tenant will negotiate a lease with as many options as possible. This allows the tenant to have a flexible office lease and reduces the landlord’s ability to have complete control of the lease. In a way the more options a tenant can negotiate into the lease the better the insurance policy will be to protect the tenant from uncertainties that could occur in the future that are unforeseen today.