Real Estate / 4 min read
As the hot summer months roll on, many office tenants are either already on the move or looking at where they may choose to office next. Depending on the market where you are looking, a landlord may be in a relatively strong or weak position when it comes to negotiating an office lease. There are a few commonly negotiated lease provisions with expectations for both landlords and tenants.
Rent Abatement
Tenants often ask for rent abatement, usually at the beginning of the lease term, but sometimes periodically through the term. This can help reduce the financial burden of moving or other expenses that may spike from time to time. A landlord may want to tie the tenant's rent abatement to the tenant's obligation not to default under the lease and will sometimes require that all or a portion of abated rent be returned to the landlord as part of a negotiated early termination of the lease. If a landlord is to agree, it is common to give rent abatement in exchange for longer lease terms or lower tenant improvement allowance.
Tenant Improvement (TI) Allowance
Landlords often give tenants a per-square-foot allowance that the tenant can use to build out the leased premises. This also helps a tenant stay afloat while incurring high costs during a move or expanding a business's presence. Nothing is free, meaning the tenant will have to agree to something else during lease negotiations to get a substantial TI allowance, such as a longer term, a higher monthly rental rate, or lesser options/rights elsewhere in the lease. Landlords will want to limit what the TI funds can be contributed toward, such as the costs of construction, but a tenant may ask for such funds to be used for operating or moving costs. If the tenant has negotiated an early termination option for the lease, it can expect to pay back a portion of this allowance.
Parking
Tenants need parking, sometimes quite a lot of parking. Landlords want to collect rent for parking spaces assigned or permitted for tenants, especially where available parking is particularly limited, whether assigned or unassigned, uncovered, covered, or within a garage. Each tenant should have an idea of how much parking it requires based on its employees and customers that may need to visit the building. Tenants can often negotiate abatement of parking costs for part or even all of a term. Landlords, though, will often require that such abatement be tied to a tenant avoiding any events of default under the lease, and a tenant may be required to pay back all or a portion of such abated parking charges in the event of an early termination of the lease.
Early Access
Tenants often want access to their leased premises prior to the commencement of the lease. This could allow for the installation of furniture, equipment, and other personal property or improvements. It could also be to allow the tenant to conduct its business uninterrupted. A landlord may allow such early access without requiring the tenant to pay base rent or its share of operating expenses, though the tenant should expect to still be obligated to pay for the cost of any building services requested by the tenant. If a tenant needs more immediate access to the building than what can be reasonably attained because of a prior tenant's occupancy and/or the extent of the buildout required under the lease, a landlord may offer a temporary space for the tenant to utilize until substantial completion of the leased premises. All points are to be negotiated between the parties, and each party can expect to give a little in order to get what it wants, depending on the relative bargaining power of each party.
Signage
Visibility of a tenant's name can be important for some. Landlords will typically provide building-standard suite identification next to the entry of the leased premises and possibly on a directory of all tenants within a building. Beyond that, all signage rights will be negotiated, with landlords typically prohibiting anything that is visible from the exterior of the leased premises or anything that is not in the building-standard graphics. A tenant may negotiate, however, to have its name on a multi-tenant monument sign near the building's entrance or even to have its signage located at the top of the building for all the world to see. Such availability is usually only feasible for significant tenants within the building, and the costs for such signage will be built into the monthly base rental rate the tenant is responsible for. Tenants are also often required to maintain any monumentation at the tenant's sole cost and expense and to reimburse the landlord for any maintenance performed by the landlord in the event that the tenant fails to uphold this obligation.
Both tenants and landlords can show up with bargaining power when getting into or out of a lease agreement. Knowing the right provisions could help each party go a long way.