You are negotiating an office lease with the landlord for the office space you have decided you would like to lease or rent. Your letter of intent, outlining the business terms, includes an expansion option to meet your growth expectations. Hopefully you have a good office tenant representative, like the ones we have at OfficeFinder, to help you through the process. In any case, you need to understand the different types of office lease expansion options available to you. It sounds simple, but it is not.
Was the agreement for a ROFN, ROFO, ROFR or Pocket Space? They are all expansion options, but mean very different things and will subject you to very different rights under your office lease.
ROFN – Right of First Negotiation gives the Tenant very few rights other than to negotiate a new deal with the landlord. You can be assured of the expansion capability so long as you are willing to agree to whatever the Landlord is asking. In other words, you pretty much have no rights.
ROFO – Right of First Offer or Opportunity. This also give the Tenant very few rights. It simply means that you get the opportunity to be first in line to negotiate with he landlord, but once again, you are still at the mercy of the landlord and the terms he wants.
ROFR – Right of First Refusal does provide the Tenant with rights. Specifically the right to match a bona fide offer to lease within a certain period of time. This is the best option so far. you get an opportunity to meet the terms that a 3rd party is wiling to pay for the space, guaranteeing that you will get a market deal of the expansion office space.
Pocket Space is space that the Tenant commits to take either after a period of time or when they start to use it and is generally included as a part of the original office space premises. This option is good for you only if you are sure you will be growing into the additional space within the time period specified or sooner, usually within a year or two, or when you start to use the space, whichever occurs first. This can be a good option for fast growing companies by providing them with the flexibility they need to expand.
Having a clear understanding of these various terms will help ensure you are getting the office space expansion option you think you are getting. These various types of expansion options vary market by market and vary based upon market conditions. Contact us to engage the services of an experienced office tenant rep who knows the market and what options are available. It won’t cost you anything, but will save you from making costly mistakes and also ensure you get the best deal possible.
By: James Osgood