Mar 18, 2019

5 Things to Beware of In Your Office Lease

By Don Catalano


5 Things to Beware of In Your Office Lease
It's easy to get overwhelmed when you're reviewing a lengthy, complicated office lease, but simply skimming the document can set you up for trouble in the future. Make sure that you read the entire contract carefully and keep an eye out for these important features of the lease:


1. Personal Liability

At this point in time, it probably seems impossible that your company could reach a point where you're unable to make rent payments, but however unlikely it seems that you'll find yourself facing default, you need to understand what your obligations are if it occurs. Make sure that you know whether or not you are personally liable for the debt. If you are, your landlord could come after your personal savings and assets.


2. Rentable Square Footage

As a tenant, you don't just pay rent on the office that you occupy. You'll also be required to pay Common Area Maintenance fees to cover the cost of maintaining hallways, restrooms, lobbies and other shared areas of the building. The total amount of space that you are assessed fees and rent for is called rentable square footage. Don't sign the lease until you understand how much rentable square footage you're responsible for and how the landlord calculated the figure.


3. Build-Out Requirements

Most companies will need to make modifications to an office space before they can move in, so it's important that you understand what the requirements for build-outs are. Does the landlord have certain standards that you must meet? If so, the potential costs may be higher than you anticipate. You'll also want to find out if you're free to choose your own contractor or required to use one selected by your landlord. Confirm that you'll be able to exit the lease if you're not able to secure the permits for your build-out.


4. Rental Increases 

With most leases, rent rates are not fixed. You should expect that at some point in your lease, the costs will increase. Carefully read the section of the lease that spells out when rental escalations occur and how they are calculated. The lease may specify that your rent will increase every year by a set amount. In other cases, rent may increase only when the landlord's property taxes or operating expenses increase. Rental escalations may also be tied to variable indexes, such as the Consumer Price Index. If escalations are based on costs or indexes, make sure that you're aware of any caps that limit how much the landlord can raise the rent.


5. Protections for the Future

Be sure to look for clauses in the lease that will protect your company in the future. Find out if you're able to sublease or terminate the lease early if you need to give up all or part of your office space. Confirm that you have the right to renew the lease at the end of the term. It's also wise to have a Subordination, Non-Disturbance and Attornment clause added to the lease to ensure that you're able to remain in the building if the landlord enters foreclosure.


Here are a few other articles you might enjoy:

6 Ways to Increase Connectivity in the Office

The Beginner’s Guide to Commercial Real Estate Terms

8 Common Pitfalls to Avoid in Commercial Real Estate


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Don Catalano

Don Catalano