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
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.
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
Find a Tenant Representative
Office Leasing Tips , Office Relocation , Office Rental , Office Space Negotiations
The CCIM Institue has come out with their market analysis of the commercial real estate sector and it calls for very modest growth in the office space sector (full discussion below). Slower employment growth, as would be expected is the main culprit.
"Office Space: Office markets are showing only modest improvement. Office employment has increased 2.2 percent during the past year, compared to average growth of close to 3.0 percent during the past cycle and well over 4.0 percent during second half of the 1990s. Moreover, firms continue to find ways to squeeze more workers into fewer square feet. Even with modest growth, net absorption has risen for five consecutive quarters, but growth is exceptionally modest by past standards. With little new construction, vacancy rates have edged lower, falling 0.4 percentage points over the past year to 17.2 percent, according to Reis.
While the overall market is seeing only modest gains, there are a few pockets of strength. Major technology centers, including the San Francisco Bay Area, Seattle, Austin, and Raleigh, N.C., all continue to see strong demand. Rents have grown the most in the San Francisco Bay Area and New York, which is also increasingly driven by the tech sector.
Despite the sluggish pace of recovery, office property sales have increased this year. Properties in key technology centers, areas with a great deal of exposure to healthcare, and a few major energy markets, such as Houston, continue to outperform most other major markets. New York appears to be successfully navigating the slowdown in the financial services industry and is seeing an influx of technology jobs. Washington, D.C., however, has seen demand for space and buyer interest wane as continued anxiety and uncertainty about the federal budget has sent chills through market. The suburbs of Washington, D.C., are faring better with the tech sector fueling gains in northern Virginia and healthcare driving gains in suburban Maryland and Baltimore."
Find Office Space
Commercial Real Estate , Manhattan Office Space , New York Office Space , Office Space Negotiations , San Francisco Office Space , Seattle Office Space , Washington DC Office Space
Business transactions require careful financial analysis and
commercial office space leases are no different. Whether your organization is
negotiating an office lease for its first facility, relocating into a larger office
space, or negotiating a lease renewal for the same facility you’ve rented in
the previous lease period, a complete evaluation of the costs should be to
reveal exactly how beneficial the current negotiating position is to the future
of the company as well as to compare options.
By this point in the commercial office property lease negotiation
process, you should have already selected a real estate professional, a tenant rep, to assist
you in obtaining the best possible office lease. Property owners, of course, want to
realize as much money from their real estate investment as possible while you,
as a business owner, want to secure an appropriate venue for your firm at the
least possible cost. Experienced OfficeFinders are office space lease negotiators and know
exactly how to analyze the cost of occupying the commercial space so that there
are no unpleasant surprises in store for you.
You may have found what appears to be the perfect location
for your business and, at first look, the lease costs appear to be a fair deal.
Comparing the lease cost of the selected office space to the cost of other
available properties in the same market area will strengthen your negotiating
position and allow you to establish a final lease agreement that is beneficial
to your company.
The real estate professional acting as your lease broker
will include in the financial analysis each and every cost identified in the
lease document as being your responsibility. These will include but may not be
- Rent per square foot
- Useable square feet
- Operating expenses charged
to the renter
- Caps on rent or operating
- Provisions for reduced
rent due to damages or other circumstances
- Tenant improvement
- Value of parking
- Incentives for lease
renewal, longer lease term, expanding rented space, or early payment of
- Cost of utilities paid by
- Penalty for early lease
termination if necessary
- Cost of adhering to any
applicable county, state and federal regulations
- Repairs and maintenance
required to be paid by renter
- Common area maintenance,
- Charges to renter
associated with security and cleaning services defined and selected by the
software applications make accurately calculating and comparing the total cost of rental easy. It does requires trained professionals to understand the complex lease terminology
and translate this into accurate dollars and cents to be able to use in making your office space decision. If any areas requiring
further negotiation are identified as a result of the financial analysis, you
will be prepared with documented reasons for requests in lease changes. The
assistance of a commercial office lease broker can save your company thousands
Get Office Leasing Assistance
By: James Osgood
Office Relocation , Office Space Negotiations , Tenant Representation
Hong Kong $248.83 per square foot
London - Central (West End): $220.15 per square foot
Tokyo $186.49 per square foot
Beijing (Jianguomen — central business district): $180.76 per square foot
Moscow: $171.53 per square foot
Beijing (Finance Street): 166.89 per square foot
Hong Kong (West Kowloon district): $158.72 per square foot
São Paulo, Brazil: $144.75 per square foot
New Delhi (Connaught Place — central business district): $140.21 per square foot
London - Central (City): $131.51 per square foot
Midtown Manhattan average only $114.30 per square foot. What a deal!
Find Office Space
London Office Space , Office Rental , Office Space , Office Space Negotiations , Tokyo Office Space
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.
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
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.
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
- 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
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.
More on Disaster Recovery
Find Office Space
Office Leasing Tips , Office Space , Office Space Negotiations