Oct 28, 2015

Basics of Office Leases

By Don Catalano



If you aren't used to the world of commercial real estate, an office lease may seem very complicated. Lease agreements can span multiple pages of complicated legalese, cost your company millions of dollars and lock you into a space for years or even a decade. However, underneath all of the jargon and complexity lies a relatively straightforward business transaction.

An office lease gives your company the right to occupy a space in someone else's building for a set period of time. Of course, the landlord expects to be paid for the use of that space, and the lease spells out how much rent you will pay for it. Your lease also spells out all of the other rules that determine your responsibilities to your landlord and your rights to your space and to the building, both now and in the future.



Typically, you make monthly rent payments to your landlord as a part of your office lease. Leases typically come in one of two broad types. In a full service or gross lease, you make a single rent payment every month. That rent payment helps to reimburse the landlord for the cost of operating the building as well as paying him for the value of your space. Triple net or net leases typically have two separate payments. The rent payment covers the value of your space while you also reimburse the landlord separately for the cost of operating the property.


Usually, full service leases are quoted with a higher rent than net leases, but that doesn't necessarily mean that they are cheaper. For instance, a space that has a $40 per square foot annual full service gross rent would actually be cheaper than a space with a $28 per square foot triple net rent and an additional $15 of expense reimbursements. That space actually ends up costing you $43 per year.


Office Lease Terms

Typically, your lease will tie your company up for a period of years. Furthermore, landlords are usually wiling to offer better deals if you sign a longer lease. After all, it can be expensive for them to find tenants, so they would rather do as little re-leasing as possible.


Long leases aren't always a good idea, though. Realize that signing a long office lease means that your company will be stuck in the space for a long time. If your needs don't change, this is a great way to save money. However, if you grow, shrink or choose to change locations, you could end up stuck paying rent on a space that you can't use.

Lease Terms That Give You Options


Your Rights Under a Lease

You might have picked up that an office lease is similar in some ways to a residential lease like you can sign for an apartment. In some ways, this is very true. You get to occupy the space during the term of your lease as long as you follow its requirements. Your landlord can't unreasonably disturb you in your space. He or she also has to maintain the building in a way that allows you to use it.


There are two very important differences, though. First, while many cities and states offer special legal protections for residential tenants, you typically won't get any special treatment as a commercial tenant. Second, while many residential leases have automatic renewal provisions that let you stay in your space, under a typical office lease, you won't be able to renew unless your landlord wants you to or unless you negotiate that right into your lease when you first sign it.


View some other Office Lease articles:

5 "Gotchas" in Your Office Lease

Commercial Lease Renewal Myths... Busted!

Protecting Yourself from Signing the Wrong Office Lease


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Don Catalano

Don Catalano