Business Terms for Leases
There are many options and terms available when leasing office space. You may know precisely what you want in a lease. For those who do not, the following covers some of the areas which you will want to address in your lease negotiations
- Type of Lease
There are different types of leases that specify who is responsible for cost increases. A flat lease sets a single price for a definite period of time. A step lease tries to cover increasing costs for a landlord by increasing the rent each year throughout the life of the lease. The increases are based on estimates at the time of the lease, so it’s difficult to know if they are real. A net lease is similar to a step lease, but the increases happen when the costs occur, and are based on the actual amounts. Percentage leases allow the landlord to benefit from your success by colleting a percentage of your business’ gross profit.
- Escalation clause.
Increases in rent based on inflation will include this type of language. This clause spells out how much the rent will escalate with inflation. Ask for documentation on what the percentage has been over the last five years. - Renewal option.
Under this clause, you have the option of renewal under the original base rent. - Maintenance.
The lease should spell out what repairs or maintenance items you will be responsible for under the terms of the lease. For instance if the door lock jams, who is responsible to repair it? Is the lessor, or management company, responsible for the cleaning service; and how often do they clean? Even minor items, such as duplication of door keys should be addressed. If the building has a mandatory security system, who is responsible for paying for it and maintaining contact with the administrators? - Insurance.
Often, the lessor will request proof of insurance coverage before the move-in. The lessor must know that you are covered for any damage you may cause during the move-in, as well as have adequate liability coverage for injuries. After you move in the same usually applies. The minimum coverage the lessor expects should be detailed in the lease. - Move-in/delivery regulations.
If you move into a multi-occupancy building, it is possible that the management company will have rules regarding hours in which you may actually move-in and specific doors and elevators which you must use to do so. In addition, there may be restrictions on times and types of deliveries to your office once you have moved in. - Storage Space.
If you require storage space, you should determine if the landlord has such space available and the costs associated with its use. Or will you be allowed to build such an area in the space you lease (see Renovations). - Sublease.
The lease should clarify if a sublease is permissible, and the specific terms, if so. - Restrictions on Use.
The lease should spell out any restrictions for use within the lease space. For instance the landlord may restrict use of certain type of equipment within the space. - Improvements.
There may be improvements which you agree to as part of the negotiations and these should be reflected in the lease. The ownership of these improvements must also be addressed in the lease. It should specify what happens to them when the lease terminates. On the other hand, you may want to make changes within the space you have rented. The lease should address your rights, and the extent to which you can do so. This could be as simple as putting up a non-bearing wall, or installing a security system. If you should decide your space would better serve you with most of the walls removed, will you be able to do it? What will the restrictions be? Will you be required to reinstate whatever you remove at the end of the lease? The reality of many of these things depend on the length of the lease - the longer the lease the more you can ask for. - Heating/Air Conditioning (HVAC).
It is important that the hours of operation for the HVAC be addressed, especially if your office works outside the normal 9:00 to 5:00 hours and on the weekend. It is not unusual for some buildings to operate the HVAC until 7:00 p.m. during the weekdays, and not at all on the weekend. It's a little hard to get much work done if you're too hot or cold. It might be possible to request installation of an individual control thermostat for your space, or it may be provided by the lessor. The lease should also spell out your responsibility for the heating and air conditioning. Is it a percentage based on your square footage? Does it include the common areas? Even if you have an individual thermostat in your space, you will likely still be responsible for a percentage of the common areas. This is one of those items you should find out in your initial research. - Renovations/Repairs.
If there are items which you and the lessor agree should be done prior to, or even after, move in, these items should be included in the lease. - Termination.
The terms of your right to end the lease is crucial, as well as in which circumstances the landlord can do the same.
These are all items which are crucial to a lease which you can live with. It is unlikely that the landlord, or management company, will automatically cover most of them. You must know what your needs are and request that they be included in the negotiations and the final lease agreement.
Consultation with an attorney during the lease process is also important. Often the lease will contain language which is entirely foreign to you. You certainly want to have an attorney look over the lease prior to signing it; and it is in your best interest that you thoroughly brief the attorney on the items which are important to you and those areas which you and the landlord have agreed on (i.e. improvements), so that the attorney can make certain that everything is properly addressed in the lease.
Most importantly, make sure you understand the terms of the lease before you sign it. It is a legally binding agreement, and not usually subject to revisions after it is executed.