No one lease agreement can cover all of the factors that will make your business successful. Plan to negotiate; otherwise you’ll get stuck with lease terms that don’t work for you.
When you find a great Tucson space for your business and are ready to lease, beware of the “standard” lease that the landlord might hand you.
This form is undoubtedly one-sided in the landlord’s favor. No “standard” Tucson commercial real estate lease exists. Don’t be afraid to carefully review and negotiate the terms of the lease with the help of a reliable commercial real estate broker and lawyer.
Here are some suggestions to help you become more lease-savvy and capable of negotiating a favorable Tucson office lease for your business:
Understand usable vs. rentable space.
Usable square footage is the area to which you will have exclusive access.
Rentable square footage includes usable space plus common areas such as public corridors, elevators, lobbies and bathrooms.
You also need to know the exact physical boundaries of the lease.
Permitted Use of the Premises
An office lease typically details the permitted uses of the leased space. Make this clause as broad as possible, even if your intended purpose is initially narrow.
This gives you flexibility in case your business grows and your plans change.
Also make sure that zoning ordinances do not prohibit you from running your business in that location.
Lease Length (Term)
A longer-term lease can give you stability and keep your rent lower, but reduces your options when your business or the rental market changes.
A shorter-term lease allows you the flexibility to pack up and leave sooner if you are not pleased with the location, your business has outgrown the space or you find yourself paying above-market rental prices.
Try to negotiate a shorter-term lease with renewal options — a two-year lease with four two-year renewal options, for instance, rather than a 10-year lease.
Carefully review any rent escalation clauses and match them with the projected cash flow of your business.
Sometimes landlords insist on annual increases based on the percentage increases in the Consumer Price Index (CPI ). If your landlord insists on rent escalations, try to arrange that a CPI rent increase doesn’t kick in for at least two years.
In addition, consider agreeing on predetermined fixed amounts, like $2,000 a month the first year, $2,100 a month the second year, and $2,300 a month the third year. If the landlord has had trouble renting the space, they may more readily agree to your proposal if you are willing to sign a more long-term lease.
Some leases require the tenant to pay for cleaning, building security, electricity, HVAC (heating, ventilation and air conditioning), maintenance and repairs.
If the landlord is charging you for these services separately, try to negotiate a fixed fee or cap on the amount.
Watch out for extra charges for services supplied after business hours or weekends. These operating costs could add up quickly.
Who pays for improvements such as a new paint job, new carpets and reconfiguring the space depends on how tight the commercial office space market is.
Ask for a clause that says you can make alterations or improvements with the landlord’s consent and that the consent won’t be unreasonably withheld or delayed.
Repairs, Improvements and Replacements
Get very clear about who is responsible for these. Cant’ get any movement on negotiating terms such as monthly rate? You may be able to get an agreement on “extra” repairs and services by the landlord instead.
See if you can avoid penalties for technology upgrades such as additional wiring for computers and telephone lines that remain after you leave. As a bargaining tip, point out that your technological improvements will increase the value of the property.
Watch out for requirements that you return the premises in their original condition at the end of the lease term. Instead, try to get the following:
“The premises will be returned to the Landlord at the end of the tenancy in the same condition as at the beginning of the tenancy, excluding (1) ordinary wear and tear, (2) damage by fire and unavoidable casualty not the fault of the Tenant, and (3) alterations previously approved by the Landlord.”
Assignment and Subletting
Avoid any restrictions and prohibitions from assignment and subletting clauses. Startup companies especially should negotiate enough flexibility to allow for mergers, reorganizations and share ownership changes.
Watch out for a clause that requires landlord approval for an assignment when there’s a change in more than 50 percent of the company’s stock ownership. It can be triggered as the company grows and gains new investors.
And if the company shrinks, you also need to be able to sublet.
Option to renew
Try to get the lease renewal option at a fixed predetermined price, not based on a “fair market” price. It will save you money down the road — especially if the price of office space escalates.
A right of first offer obligates your landlord to present to you first any space that becomes available in the building.
It also obligates the landlord to bring you any deals he’s willing to sign with third parties for space in the building. That gives you the opportunity to match the deal and preempt the third party.