5 things to look for when leasing office space
1. “Full service leases include everything.”
if operating expenses goes up your rent will go up usually after the first year. Make it clear in the lease which expenses are included. I have seen real estate commissions and their build out cost included in operating expenses.
2. “The build out is turnkey.”
This can be a big fat turkey. The tenant improvement allowance, or TI, is a moving target. Usually you get an allowance which never covers what you want or need. Historically or traditionally, a $20 per square foot for standard office and $50 per square foot for medical allowance had been customary. However, as the market improves, contractors become busier and material costs increased, $50 PSF for standard office is the norm and $75 PSF plus for medical.
3. “It’s the base rent plus NNN”
NNN, otherwise known as Triple Net rents consist of a base rent PLUS your proportionate share of real estate taxes, building insurance (not your business insurance) and CAM or common area maintenance. The NNN lease is standard in retail assets, given the individual nature of the spaces. Office buildings are often times full service and share much of the facilities.
4. “Base rent plus utilities.”
This is typically an acceptable practice, and here is the "but", but it needs to be separately metered. This isn't always the case at which point estimations on usage and annual reconciliations are required. Not a deal killer but something to certainly watch for.
5. Landlord-be comfortable with your landlord.
TEETH OR FANGS?
Depending on the size of the landlord, the lease may be more aggressive than needed. Large property owners tend to have lengthy leases. If you are renting 2,000 square feet and they hand you a 50 page lease, not a good sign. Check with other tenants in the building. Try not to give personal guarantees if you can avoid it. Again, not a deal killer, but it protects your interests.
OK, great, so now what?
These are going to be some of the most common elements when leasing an office space. A good negotiation strategy will then boil down to how sensitive each of these variables the respective parties are to the transaction.