Check whether:
The amount of rent you pay for your office is in line with the average rents in your neighborhood asked for the premises of similar size and finishes?
Are your premises really worth the rent?
Do they require refreshment or improvement?
Are they rented/delivered equipped or furnished?
Are they capable of absorbing potential growth in company’s activity?
Is your location well served by public transport?
Do you have parking for your employees and for your customers?
How was the number of m2 you are paying for calculated? Are you paying for the m2 you actually use or are other areas included in the rented area?
Are your charges included in the rent or do you pay them separately? Make sure you pay the charges related to your rented premises.
Is your lease a long term lease?
All of these criteria have an impact on the rent.
Don't sign a lease with your eyes closed, learn how to negotiate the commercial lease or entrust the task to a professional.
Like most business owners that rent their offices you will need to find the right location in a desirable size that corresponds to your budget. Negotiating your lease is crucial to ensure you’re getting a correct, competitive price that will allow your business to function and ultimately flourish.
For many companies the office rent represents the second largest spending after salaries. However, when it comes to renewing or negotiation of their lease most of the companies think the only thing to there is to discuss is the rent per sqm.
It’s wrong.
The lease holds many points which can be optimised & negotiated:
Rent per sqm
Charges
Indexation
Rent free period
Landlord's contribution towards tenant's fit-out
Restitution
You negotiate your lease every 5-10 years. It makes sense to hire someone to represent your interest in these rare negotiations... or learn how to do it yourself.
The economies realized by you will surprise you.
Landlord contribution towards tenant’s fit-out ( Tenant’s Improvements Allowance (TIA) )
One of the negotiating elements is the landlord's contribution towards tenant’s fit-out.
One of the negotiating elements is the landlord's contribution towards tenant’s fit-out.
When you are looking for you premises, commercial real estate spaces are rarely tailor made for a particular tenant's needs. More frequently, you are acquiring a space that previously housed a completely different type of business or is completely empty. In any case, you are likely going to want to make some improvements one way or another.
It is always worth to ask the landlord for a tenant improvement allowance. A tenant improvement allowance is a sum of money allocated to the tenant by the landlord for improvements of the space. The allowance often pays for improvements such as new flooring, fixtures, space re-configuration, etc. It is stated either as a per-square meter amount or a total money sum. Generally, if the improvements cost more than the agreed-upon sum, tenant pays the extra amount.
Tenant Improvement allowances are more often seen in retail leases however you should not be afraid to ask for one in your office lease, as depending on the market the tenant may as well obtain some monies. It can be a significant tool for a tenant to help him with his business.
In case the landlord has conceded to a monetary amount of tenant improvements, you will then need to discuss the following:
Who will do the design?
Who will do the work?
When will it get done?
Who will pay for it and when?
In case the landlord is contributing actual money to your build out in return he may also ask for influence on the commencement date, increased control over the works execution, using particular contractors, etc. He will usually also get an ownership of any permanent fixtures and improvements, that will become part of the building upon construction. This means the tenant will not be able to remove it at the lease end.
Often the tenant improvement allowances are subject to additional rules, i.e. if the tenant negotiated a 10 year lease with an opportunity to exit it earlier in year 7 and the landlord financed part of his works, tenant who decides to leave earlier
Rent Free period
This is one of the most important negotiating points of the commercial lease in addition to the rent reduction. Independently from the fact if you are taking on new lease or renewing your old lease, you have to ask the landlords for the rent-free period.
Rent free period corresponds to the time when your leases have commenced and you are already in the premises, but you are only paying the charges, but not yet the rent.
The duration of the rent-free period will often be tied to the duration of finishing fit-out works before you can actually start working in the space and often amounts to 3-6 months. However, it may also be longer, in case the tenant signed a long-term lease, or took a lot of sqm,
in case the premises were empty for a long time prior to entering, etc.
However, it does not have to depend solely on the finishing works in your space. It is often easier for the landlord to give you a rent-free period rather than considerably lower your rent or give the money for the fit-out. This is why you have to make your demands regarding different points of the lease (rent reduction, rent free period, works in the space or an allowance, lowering of the guarantee, taking off the reinstatement obligation, etc.), and tune to landlord’s preferences to obtain the win-win results.
A rent free period is part of the lease negotiations. The amount of rent free usually depends on market conditions, reasons for granting such rent free, and overall general negotiations.
For example, an office tenant who has to invest a substantial amount in fitting out the premises may need 6 to 9 months to complete the work and then ask the lessor for a reduction in rent for the period during which he was not able to work physically in the offices. A lessor generally considers this a reasonable request, of course contingent on market conditions and the length of the lease.
A longer rent-free period can be considered when signing a longer lease which, under current market conditions, is longer than 5 years, the ultimate terms depending on the premises, owner and negotiation strategy of the landlord.
Since a rent free is an incentive, there may also be a penalty clause in the lease in relation to this incentive in the event of tenant default. For example: you signed a fixed 5-year lease and the landlord granted you 5 months of free rent (1 month for each year of your lease). Provided you have provided for an early break option after the third year and decide to leave, the landlord will likely ask you to pay back 2 of the 5 months rent free granted.
However, even if you are not ready to make a long-term commitment, a free rent period is now a commonly adopted negotiating tool for office building leases, and landlords often prefer this option. rather than granting you rent reduction or tenant improvement allowance/monetary contribution towards your fit-out.
Other negotiation points: Exclusivity clause and Colocation clause
What if you don't want to have your competition in the same building? How can you protect yourself if the flagship/key tenant leaves the building?
Exclusivity clause
Tenant may want to prevent the landlord from leasing the premises to his direct competitor in the same property. In such case tenant has to define what constitutes a direct competitor.
Co-tenancy clause
Sometimes, if a key anchor tenant - a well-known name that adds prestige or attracts customers to the property - moves out of the development, your business may suffer. A tenant may negotiate a co-tenancy clause gives him the option to break the lease or renegotiate the rent, unless the landlord doesn’t find a replacement
for that tenant.
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