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Entries Tagged as 'Office Leasing Tips'

The Big Unknown: Office Space Operating Expenses

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One of the things that can complicate your budget for office space rent is operating expenses.  There are two ways your landlord can handle these costs.  The first is simple – if it’s $12.00, he charges you $12.00 or $1.00 per square foot per month and you are done.  This is known as a triple net lease (NNN).  The other method is over a Base Year.  This means that in Year One of your lease that $12.00 is included in your rent number, but you’ll pay the difference in subsequent years.  So if your operating expenses increase by $0.25 in Year Two, you’ll pay that difference either in a lump sum or in 12 installments – it depends on your lease.

What do these two methods have in common? Uncertainty... read more

Source: OfficeFinder Miami Member

 

 

Lease Negotiations , Miami Office Space , Office Leasing Tips , Office Space , Office Space Negotiations

The Office Lease Signing

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 After you and your office tenant rep have negotiated a lease for your office space that protects the interest of your business and is agreeable to the property owner, it is finally time to sit down and sign the legal document, a binding office space lease that allows you and your team to occupy the chosen space. You should have your tenant rep there to cover any last minute questions you might have.

Having a real estate profession in the person of your selected office tenant rep present may seem redundant since you have sought counsel and advice repeated during negotiations from your tenant rep. Yet, verify that the changes you have requested to the office space lease have been worded correctly in the final document can be tricky for those with less experience. A tenant rep hasthe experience necessary to be sure the wording does not turn a change made to favor your interests into a clause that could trip you up and actually cost you money. Remember, your goal is obtain the best possible office space at the least cost with right to require or have performed the tenant improvements agreed upon and avoid passing rising or extra costs on to you. Another point your tenant rep will re-check will ensure that the rent increases over time do not become excessive.

Do not allow yourself to be rushed into signing the final office space lease without thoroughly comparing the notes you made of requested changes to the final document. Plan at least one to one and one-half hours for the lease signing to allow the thorough review. Whether on purpose or inadvertently, it is possible an important change could have been left out or misworded, changing the intent of the verbiage completely. If any part of the lease does not meet with the changes negotiated, stop the signing process and require an edited lease be delivered before signing.

You should also require a property checklist which itemizes the fixtures provided in the office space. For example, if the landlord is providing a refrigerator or table and chair in the break area, these items would be listed, inspected and any damages, however slight, should be noted on the checklist. Also, all walls, flooring, ceiling, doors, service outlets, and environment climate control units should be inspected during lease signing and their exact condition noted. Any damage, even small dings or excessive wear and tear, should be noted so that when you eventually relocate and release the office space to the property owner you will not be changed for these damages. Your tenant rep will help you go through the property and look for items necessary for your checklist. Many landlords use a standard checklist so be sure to note any items on the list that do not apply to the office space you are leasing.

You will need to bring payment to the lease signing table for the security deposit, any key deposits and rental payments, or whatever other payment arrangement is outlined in the lease. Customarily initial payments include first month of rent but sometimes rent for first and last month is required. Sometimes if significant tenant improvements must be completed before occupancy (be sure this is noted in the lease along with completion dates), or the occupancy date has been established for sometime in the near future, only payment of the security deposit may be required at lease signing with rental payment due upon taking occupancy of the office space. Payments can usually be in the form of a business check, money order, or certified cashiers check and in some cases payment can be made with a personal check, debit or credit card. Most landlords no longer accept cash due to the inherent danger of carrying significant amounts of cash and the possible accounting confusion if business cash becomes mixed with personal cash. Be sure to understand in advance what methods of payment are acceptable to your landlord and arrive prepared with the correct payment in one of the acceptable forms.

Once you and landlord have both signed the lease for your new commercial office space it is too late for further negotiations. You will be given keys to the property and it becomes your responsibility. You can then pat yourself and your real estate tenant rep for a negotiating job well done. 

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By: James Osgood

Lease Negotiations , Office Leasing Tips , Office Rental , Office Space

When it Comes to Renting Office Space, The Devil is in the Details

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When negotiating an office space lease or rental, you may find that the devil is hiding in some of the details and these can cost you lots of money over the life of the lease. Turn to your office lease broker for experience advice regarding how to negotiate out these demons before signing a contract for office space. An old idiom says “God is in the details” which means that anything you do should be done well. In this case, your goal is to turn those devilish little hidden clauses into the best possible agreement with the landlord of the commercial office space that everyone can live with for the life of the lease.

Initially all clauses in an office space lease tend to lean in favor of the landlord. Many of these clauses can be changed to at least give the commercial renter a fair exchange for the rent and other fees agreed upon. A few clauses to be on the look out for include:

Length of Lease and Renewal Options: The initial office lease period should give you enough time to settle in and determine how this location works for your business but not so long that you must pay a stiff penalty if you decide to move on after two or three years. If you do like the location and find the size just right for your immediate future, renewal options should offer you the right to sign another lease for a reasonable period without a huge rent increase.

Rent Increases: Speaking of increasing rent, watch out for the clause that establishes the amount or percentage at which rent can go up and the specific periods at which this change can occur. Rent should not increase more than annually and should have a reasonable cap set on it so that the cost of leasing the office space does not become outrageous in a short period of time.

Cost Transferal:  Be sure you and your office lease broker understand exactly what costs can be passed long to you or what percentage of those costs can be passed along. Examples can include property tax increases, specific repair costs not caused by your occupancy and the increasing cost of services to the building. Your rent increase should cover the costs associated with increased service costs or taxes and only those building repairs caused by you should be passed along to you.

Landlord’s Right to Early Termination: Check what verbiage is used regarding what, if any, rights the landlord has to terminate your office space lease early and what conditions must be met to justify such early termination. If this clause is too liberal in favor of the landlord, you could easily find yourself seeking different office space much sooner than your business plan set forth. This can be expensive and time consuming for your business and can be avoided with the right wording in this area of the lease.

Payment from Corporate Owners: Watch out for verbiage indicating payment can be sought from the corporate owners rather than the corporation itself.  While some office space owners like to have this protection in the event a business becomes financially insolvent, it does give a landlord too much recourse into the business owners’ private finances to allow entry into the final lease.

These are only a few of the clauses that an office space renter should be on the alert for. Turn to your office space broker for the best possible advice on all areas of the lease and lease negotiation process. 

Office Lease Location and Negotiations

By: James Osgood

Lease Negotiations , Office Leasing Tips , Office Rental , Office Space

Negotiating the Best Commercial Office Lease: Relocation Clauses

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You’ve found a great commercial office space rental to house your business operations and, with a great tenant representative (like we have at OfficeFinder) and any other needed advisors such as legal and accounting counsel; you are deep into the process of negotiating the best possible office lease for the office space location you want and need. At this point in the negotiation process take care to identify any relocation clause in the office lease and analyze how it could potentially impact your organization’s operation and earning potential.

What exactly is an office space relocation clause? This provision is contained in some, but not all, commercial office space leases, and gives the landlord the right to require the tenant to relocate their office space within the same premises in order to provide space for another tenant’s needs. Upon learning about this clause, you are very likely to say, “How very unfair to me and my firm!” and most tenants would agree. Keep in mind that most provisions in any lease tend to protect and be in favor of the property owner. For this reason, working with an experienced commercial office space tenant representative is important to protect your interests.

In an ideal situation, the landlord will simply agree to completely remove any office relocation clause in the office lease provisions. Some landlords, however, simply will not completely remove this verbiage, and then very clear, legally binding provisions must be negotiated to protect financial losses and periods of inability to effectively conduct business on the part of the tenant. It can be especially difficult when the property owner attempts to insist on keeping the verbiage “at the sole option of the property owner”, allowing the office tenant no right to refuse the request to relocate without terminating the lease at substantial penalty.

A scenario in which the landlord’s flexibility provided by the office tenant relocation clause could be invoked is a building consisting of three floors of 4,000 square feet of useable office space each. The first floor is currently empty and Tenant #1 leases 3,000 square feet of the second floor; the third floor is occupied by Tenant #2, a smaller office requiring only 700 square feet. A new tenant offers to lease 8,000 square feet of commercial space, but only if the office space can consist of the entire first and second floors. Clearly there is space on the third floor for both Tenant #1 and Tenant #2. Due to the much larger rental income from the potential new tenant who desires 8,000 feet of space on two floors, the landlord would find it most advantageous to require Tenant #1 to move to the third floor, sharing that floor with Tenant #2 who will not have to relocate. Of course, Tenant #1 may be very unhappy to uproot and relocate. If the lease were negotiated to avoid financial impacts to Tenant #1, the move might only be an inconvenience instead of a total disaster.

Points to be included in the negotiations for the relocation clause of a commercial office space lease you are considering for your enterprise should include:

  • A reasonable notice period should be defined in the relocation clause to be used as a minimum guideline.
  • The landlord should bear all costs caused by the relocation, including but not limited to finish work, painting, and moving costs.
  • Office space tenant improvements completed in the original space at the cost of the renter should be redone in a comparable and agreed upon manner in the new location at the cost of the property owner.
  • Costs associated with relocating utilities and other services such as network wiring should be borne by the landlord.
  • Expenses incurred due to changing the business address, such as letterhead, business cards and signage, including those visible on the exterior of the building, interior doors and directories, and outdoor signs, should be paid by the landlord invoking the relocation clause.
  • The relocation should not stop the company from doing business in that the space in which the company will move should be completely ready before the date of the relocation.
  • If the space is less desirable for any reason, the tenant should have the right to terminate thie office lease, attempt renegotiation of the rental charges or receive some type of incentive for relocating.
  • There should be no verbiage stating that the landlord has the right to terminate the lease should the tenant not agree to relocate. It could be in your best interest to negotiate verbiage stating that you have the right to terminate without penalty should you choose not to relocate into the space offered.

Clearly, this area of a commercial office lease can be quite tricky to negotiate. Your real estate professional will help you work with the landlord to obtain a relocation clause that both parties can agree to, should such clause be required by the landlord.  

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Office Leasing Tips , Office Relocation , Office Rental , Office Space Negotiations

When Disaster Strikes Your Office Space

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When Disaster Hits, You Want to Know What your Commercial Office Lease Outlines

Disasters do happen. Hurricanes, tornadoes, earthquakes, wildfires, mud slides – every building in every location is subject to one or more potential natural disasters. And then there are the disasters that are the fault of man – a truck can drive into your office front, another tenant can cause a fire due to neglect, or faulty workmanship can result in plumbing pipes bursting or any of several other major disasters.

Major disasters are likely to make your commercial office space uninhabitable for a long or short period of time causing major impacts to your cash flow and the lives of your employees. Even a minor disaster can cause your business to be impacted for days at a time. More importantly, who is responsible for fixing what damage in the event of a disaster not caused by you or your employees’ neglect?

The time to learn the answers to these questions is not after the disaster has occurred. You should discuss and review these areas of the lease and negotiate if needed to obtain lease provisions that will protect your business. You’ll also want talk with your insurance agent and go over policy clauses in view of the impacts of disaster on your business.

Rent Abatement:

A common but tricky provision in commercial property leases is rent abatement. This provision states that in the event the property is damaged the landlord will allow the tenant to suspend paying rent until the property is repaired. Some damages covered may include fire, flood, and common natural disasters such as tornado or earthquake, as well as any forced evacuation due to mandate of the city or county government. The landlord’s business liability insurance may provide coverage that will permit the owner to offer rent abatement. Items inside the business are usually covered by the business owner / leasee’s liability or renter insurance.

This all sounds straightforward but problems can arise when landlords include an addendum to the lease’s abatement provision that says if the tenant or tenant’s employee caused the damage, the abatement is nullified and rent must continue to be paid on-time. With this type of addendum, landlords can double-dip by continuing to get rent from you while still collecting from their insurance company.

This portion of a commercial lease requires sitting down with your tenant representative and possibly your attorney. Be sure the lease does not put undue liability on your business.

Insurance Clauses:

Perhaps the least understood points in a commercial lease are the provisions regarding insurance. Often, at least to an extent, the tenant may be self-insured. This fact, when found out the hard way, can be financially bankrupting. The Chairman of the ITRA, Dr. Ronald R. Pollina, explains that corporate tenants should consider these questions when negotiating or reviewing leases:

  • What is your risk exposure in the event of liability or injury?
  • If your leased space can’t be used because of injury, loss of utilities, or casualty, are you still obligated to pay rent?
  • Are you or the landlord responsible for the cost of relocation in the event of a business interruption?

Keep in mind that most leases are designed to protect the landlord from losses. You can expect to carry property damage insurance, liability to third parties, bodily injury, and business interruption insurance.

There are many more insurance considerations and these should be discussed with your tenant representative and insurance agent. Protect your business in as many ways as practical and affordable so you don’t get stuck having to spend money over something that could have been avoided through wise lease negotiations. 

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Office Leasing Tips , Office Space , Office Space Negotiations