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TENANT'S GUIDE TO OFFICE LEASING
WHEN DO YOU NEED
A NEW OFFICE SPACE?
YOUR COMPANY
IS EXPANDING
YOUR LEASE
IS EXPIRING
RENT
ESCALATION
DISLIKE SUPER AND/OR COMMON AREAS
IF YOU HAVE THOUGHT OF AT LEAST ONE OF THESE RECENTLY, YOU ARE READY TO TAKE THE NEXT STEPS.
YOUR COMPANY
IS SHRINKING
YOUR LEASE
IS EXPIRING
FOUND A
CHEAPER RENTAL
YOU WOULD LIKE
A BETTER VIEW
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?
WHAT ARE YOUR
NEXT STEPS?
NEGOTIATING YOUR DEAL
Your offer should propose beneficial terms and stake out negotiating
positions among Landlords. Submitting offers for multiple spaces at the same
time can create competition and help achieve the best deal possible.
Here are some common deal terms to think about.
LEASE TERM
RENTAL RATE
SUBLEASE AND ASSIGNMENT RIGHTS
ELECTRICITY
RENT ABATEMENTS
RENEWAL/
TERMINATION
OPTIONS
TAXES
OPERATING
EXPENSES
LANDLORD'S
WORK OR
MONEY FOR
SPACE BUILD-OUT
SIGNAGE
HEATING AND
COOLING
SECURITY DEPOSIT/ GOOD GUY GUARANTEE
NEGOTIATING YOUR LEASE
Leases are drafted first by the lawyer representing the landlord. These leases should incorporate all of the terms agreed upon in negotiating the deal. The leases will also contain many standard provisions for tenancy as required by New York State and City laws, but it will more than likely contain other provisions, which the landlord
will include to protect his interests. The laws and provisions are complex and sophisticated, and it is in your best interest to hire your own lawyer to review the leases and work with the other lawyer and your broker to protect your interests.
INSURANCE
CORRECT BUSINESS
TERMS
COMPENSATION FOR FAILURE TO DELIVER THE SPACE ON TIME
SUBLEASE PROVISIONS
RENEWAL AND EXPANSION OPTIONS
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
RELOCATION CLAUSES
DRAWDOWN
OF TENANT IMPROVEMENT
ACCURATE DESCRIPTION OF LANDLORD'S WORK
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COMMON REAL ESTATE TERMS DEFINED
LOSS FACTOR
Loss factors are calculated by subtracting the usable area from the gross/rentable area and dividing by the rentable area. (Rentable SF - Usable SF)/Rentable SF = Loss Factor. In New York, loss factor can vary from building to building - 27% - 35%.
PRE-BUILD
A “prebuild” or prebuilt space is a space that a landlord has renovated and built out in order to make it more appealing and readily available to a prospective tenant.
FINANCIALS
Landlords need to see financial information from prospective tenants. The stronger a tenant is financially, the more attractive they are to the landlord. Typically, if all other aspects are equal, landlords will choose the tenant that is stronger financially. If a potential tenant doesn’t have financials that are appropriate for the price space they want, a landlord will either: reject the tenant or ask for a personal guarantee. Landlords also use a tenant’s financials to determine the security deposit they will require for the lease. The standard documentation requested is the first 3
pages of the last 2 years of the company’s tax returns. If the company is a startup or the tax returns are not a good indicator of the company’s standing, a prospective tenant should include other information such as bank statements and statements certified by their accountants such as
profit/loss, summary of assets, etc.
REAL ESTATE
TAX ESCALATION
New York City real estate taxes are assessed every July. Each building is assessed a different tax every year. Sometimes the tax on a building does not go up, but it usually does. Landlords can’t predict how much their real estate tax will increase so they
pass along this charge to their tenants.
GOOD GUY GUARANTEE
A good guy clause basically states that if a company defaults (for bankruptcy or any other reason), the individual that signed the good guy clause is responsible for the rent in between the default date and the surrender date (when the space is vacated). This way, if the company goes bankrupt, the tenant still has an incentive to vacate the space, but is not responsible for the remainder of the lease if they
cooperate and “be a good guy”.
CANCELLATION CLAUSE
Most of the time there will be a penalty attached to this option. The cancellation clause usually holds the tenant responsible for unamortized costs of buildout, brokerage commission, and rent concession and is typically only possible to be exercised on a given date.
HOLDOVER
A Holdover clause is common in a commercial lease. Basically it states that if the tenant does not vacate the space until after the termination date, they are responsible for a specific amount of additional rent. A holdover penalty is usually between 2 and 3 times the last (escalated) rent.
RENT CONCESSION
Otherwise referred to as “free rent”, the rent concession is a period of rent abatement awarded to an incoming tenant. More free rent is attainable for longer leases, less for shorter term leases.
TAX ESCALATION
New York City real estate taxes are assessed every July, and each building is assessed a different tax each year. Tenants only pay their portion of the increase in real estate taxes on the building over the base year of their lease.