Five Ways to Limber up the Ironclad Office Lease

This post originally appeared on tBL member blog SVN Southland Commercial Blog and is republished with permission. Find out how to syndicate your content with theBrokerList.

Signing an office lease does not have to be a make it or break it, long-term business decision. Most landlords understand that businesses need flexibility, even regarding their office space. While landlords usually prefer the security of a long-term, ironclad office lease, more and more landlords are allowing flexible alternatives to help their tenants be successful. In most cases, tenants with flexible options to grow and change are more likely to be satisfied and long-lasting tenants than those tenants who feel trapped in a box that no longer fits their needs.

Below are five common concerns tenants have about signing a traditional long-term lease along with five options you can negotiate to build the flexibility you need in your office lease.

Consider asking for a Right of First Refusal for additional space in the building or complex. This could be small suites you could add to your original lease space or a larger space you could move to. If you are granted a Right of First Refusal, you will be given first opportunity to lease these spaces before they are leased to someone else. It is not a promise that you will choose to the lease them, just an option for first dibs should you need additional space.

Landlords like this option because it means they are less likely to have rent losses while spaces sit vacant waiting for a new tenant.

Perhaps your landlord will consider allowing an Early Termination Clause. While some Landlords are adamantly opposed to Early Termination Clauses, others can be persuaded with proper compensation, such as a few months’ rent payments as a penalty or reimbursement of unamortized leasing commissions. Other ways to make the ETC more palatable for the Landlord is to put a limit on how early in the lease an ETC can be exercised, for example after the 24th month of the lease.

While Landlords don’t love this option, they prefer it over having to take a tenant to court over past due rent when the tenant has gone out of business.

Ask the Landlord if he would consider a Lease with an Option to Purchase. This option will give you time to try out the space and location without the long-term commitment of a purchase. Depending on the terms, you can use your rent as a credit toward the purchase or, at the very least, negotiate a purchase price before property values increase. A Lease with an Option to Purchase can give you the opportunity to use rent payments as equity in the future purchase of the property but maintain the flexibility of a short-term lease if the space doesn’t work out for your business.

Landlords who are looking to sell their property know they are more likely to sell it to a business that has already operated from the property for some time. This option also makes for tenants who treat the property well, as it may become their own someday.

Ask the landlord for an Assignability Clause. With the ability to assign your lease, you can move out early and assign the lease to another tenant with the landlord’s approval. Another option is to ask the landlord for the Right to Sublease. This would require that you act as the middle-man, collecting rent from your subtenant and paying it to the Landlord but it would still be better than paying full rent on space you no longer needed.

Landlords often agree to assignability or sublease clauses because they are guaranteed the same rent and lease terms but not required to locate the replacement tenant. As long as the landlord has final approval of the replacement tenant, there is less risk of rent losses than if the landlord forced the original tenant to occupy the space when they no longer needed it.

Talk to your leasing agent about your specific needs and concerns to come up with a solution that is best for you. Don’t be afraid to think outside the box. Just like many other things, you never know what the landlord will allow, unless you ask.

About Stephanie Gilbert – Stephanie has been working in commercial real estate since 2003. Although she has done a variety of deals, her focus and passion, when it comes to commercial real estate, is leasing and selling office space, primarily in the Pensacola, Florida area. If you would like to contact her, you can call her at 850-610-8339, or email her at [email protected] You can follow her on Twitter at @StephanieGSVN.

Related posts: