Cybertuna Gamers

Life in Pixels

Leasing Office Space - Negotiating   by Patrick Oconnor

Negotiating From a Position of Weakness

The tenants negotiating position is much weaker than it was when he first negotiated the lease. The tenant has a successful business at this location. Moving the business takes time and costs money.

Nondisturbance Clause

Tenants can avoid this dilemma by obtaining agreement that the lease will not be terminated by foreclosure. This is termed a nondisturbance clause. Landlords are reluctant to grant this concession due to the limitation it imposes on the landlord when obtaining financing.

Maintenance Standards

The definition of maintenance standards is often vague. A typical clause may read that "the landlord will maintain the property in a manner consistent with local practice and a prudent owner".

Personal Guarantees

Landlords love personal guarantees since they require the tenant to pay for the space whether or not he needs it. Personal guarantees should be avoided by tenants whenever possible. It is reasonable that the tenant repay the unamortized portion of any tenant improvements and leasing commissions if the lease is terminated early. Further, it is reasonable for a tenant to guarantee a minimal level of performance on a building built to its specifications.

Different Rules for Second Generation Space?

However, for second-generation office space, it is reasonable to request that the tenant only be personally or corporately responsible for paying the unamortized portion of tenant improvements and leasing commissions. Although this is reasonable, it may not be possible. The strength of the local rental market and local practice will dictate whether landlords can extract personal guarantees from tenants.

Purchase Option

For single-tenant office buildings, tenants often want a right to purchase the building at a predetermined price. Landlords prefer to avoid this. A compromise is providing the tenant a first right of refusal.

Sublease Issues

Landlords want the tenant to make rental payments throughout the lease term, but don't want the tenant to profit from subleasing the office space. In some cases, the tenant has the right to sublease the space subject to the landlord's approval. There's often a clause that the landlord's approval shall not be withheld unreasonably. There's also often a clause limiting the types of businesses which can sublease from the tenant. Sublease payments in excess of payments on the primary lease can be an intensely negotiated item.

Dedicated Parking

Dedicated parking is another issue where interests diverge. Tenants love to have parking dedicated to their employees and clients. Landlords try to avoid having parking dedicated to any one user or business. Peak traffic for a business may occur in a short period of time. However, the parking spaces are typically dedicated 24 hours per day.

Expansion Options and First Right of Refusal

Expansion rights and first rights of refusal are negotiable for office space depending on market conditions. Assume you are starting a new firm which is expected to grow quickly. You're initially taking 2,000 square feet of space but hope to expand to 5,000 or 10,000 square feet of space within 18 months. Having the right to take additional space at a previously agreed-upon rental rate and to claim additional space through a first right of refusal is valuable. Once the business is successful and established within the building, negotiating rental rates at a favorable level will be more difficult.

Example

For example, assume your business has been operating successfully for two years and you expect to expand during the next 12 months. Unfortunately, your landlord tells you he just leased the spaces on either side of you. A first right of refusal for additional space can allow you to avoid this problem. Attempt to negotiate a fixed rate, which is determined while negotiating the lease for expansion space.

About the Author

The Market Research and Consulting division of O'Connor & Associates provides information necessary to make decision to commercial real estate professionals. Occupancy and Rental Data, ownership and management information are routinely gathered for four major land uses - multifamily, office, retail and industrial. This information allows investors to compare competitive properties, facilitate business decisions and track market and submarket performance. In addition the data is useful to brokers who for example continually monitor Houston retail space leasing, Houston office space leasing, Dallas retail space leasing, Leasing Office Space Dallas industrial leasing, Houston industrial space leasing, Houston apartments, Dallas apartments, Fort Worth apartments, Austin apartments, Leasing Retail Space and San Antonio apartments. Timely and accurate real estate market data increases transparency for real estate markets. It also helps to dampen the amplitude fluctuations. OConnordata rental databases are updated monthly or more often if information becomes available.
Dead Space Extraction Trailer

This entry was posted on Sunday, June 8th, 2008 at 6:59 pm and is filed under Games. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.