Office Lease Checklist – Renting Office Space & Understanding the Lease
When renting office space, it is very important to read and understand the lease. That can be a daunting task for the experienced business owner as well as for the new business owner undertaking his first lease. Some landlords will negotiate substantial variations from their standard printed form while others will not. You, as tenant, should at least understand what you are agreeing to and be comfortable that you will be able to fulfill the terms of the lease. I recommend that before you sign anything, ask your business lawyer to review the lease and discuss it with you in detail.
This article is intended to give you some general information about what to expect in an office lease and how to deal with certain issues.
1. Check All Business Terms
First, check all the business terms. Is the square footage correct? Is the stated rent amount correct? Are the names of the tenant and landlord correct? Are the commencement and termination dates correct? If there is a common area maintenance fee, does the lease tell you how much that will be? Do you have enough parking space?
2. Expected Operating Expenses
If you will be charged for operating expenses, are those expenses listed? You need to know what you are expected to pay for in addition to your monthly rent. It’s common for a lease to require the tenant to pay for maintenance and building damage for which the landlord does not have insurance. Be careful. If a storm blows the roof off the building, you do not want to bear the risk of replacement just because the landlord neglected to buy insurance to cover the loss.
3. Operating Expenses Cap
Is there a cap for operating expenses? You don’t want to face large annual increases. Try to limit the annual increase by a certain reasonable percentage.
4. Signage Restrictions
Review signage restrictions. You don’t want to hire a designer to create a wonderful sign for you and then find out that particular type of sign is prohibited.
5. Assignment and Subletting Provisions
Understand your assignment and subletting provisions. Typically you can not assign the lease or sublease to another tenant without the permission of the landlord. Also, the lease most likely will continue to hold you responsible for payment of rent even if someone else has “taken over” the lease.
6. Metered Utilities
Are your utilities metered? In a large office building, that is most likely not an issue but in a small strip center it could become a very big issue.
Are you allowed to make improvements to the leased space? Can you build out what you want? Can you get a build out allowance?
Typically, the tenant is required to indemnify the landlord for damages incurred as a result of tenant’s operations. Try to limit the indemnification as much as possible and be sure to buy insurance for that obligation.
9. Insurance Requirements
Be sure the check insurance requirements. If they are overly harsh, you may want to try to negotiate them down or, if insurance costs are prohibitively high, you may want to look elsewhere.
10. Utility and Services Provisions
Review utility and services provisions. If the building does not have essential services such as water and electricity for a period of time, can you get a rent abatement or can you terminate the lease?
Pay close attention to provisions regarding destruction of part or all of the building. Leases sometimes give the landlord a very long period of time for repair before the tenant can terminate the lease. This is one area where landlords are typically amenable to negotiating a reasonable period. You don’t want to make yourself susceptible to months of waiting in a partially destroyed building while the landlord determines whether to repair the premises.
Review the events of default section. That will tell you what actions on your part will constitute a default (or breach of contract) under the lease. Typically, it will name failure to pay rent or other sums due, abandoning the premises or failure to comply with any other terms of the lease. It is unlikely that you will be able to change those terms, but look at them to be sure you don’t inadvertently default because you didn’t know what was required of you.
13. Renewal Options
Look for renewal options. Are they automatic or do you have to take some action to renew the lease? If you holdover and not vacate the premises at the end of the lease term, how much rent will you be required to pay during the holdover period?
Make sure any schedules mentioned in the lease are attached and make sure the space you want is the space described in the lease or on a schedule.
15. Verbal Assurances
Do not rely on verbal assurances. In real estate, “if it’s not in writing, it didn’t happen”.
Business Attorney or Real Estate Attorney to Review the Lease
This article highlights only a few of the provisions of an office lease to consider when leasing space. A business owner should thoroughly review the entire lease before signing it. Preferably he should engage a business attorney or real estate attorney to review the lease and offer advice on the practicalities of leases as well as the exact terms of the agreement.