Whenever a client has a problem with their space or lease agreement, 9 times out of 10 we can trace that negativity back to one thing: a communication failure in the original lease negotiation.
Leases are unfamiliar territory for many of our clients. Most of the time, they just don’t know the right questions to ask. Below is a nice Office Lease Checklist from Troy Golden, a tenant advisory broker out of Chicago. We use a similar one for all our clients.
Here are a few of the most important questions from his checklist to make sure you ask before you sign a lease. Or you could make it simple and just call us.
- Does the square footage match the floorplan and ONLY include the space we’re leasing?
- How much parking will we get with the lease? What is the location and price of the parking?
- Will other tenants and/or construction be an issue, either with noise or conflicting use?
- Is the lease Modified Gross, Full Service, or Triple Net? What do these mean?
- What are the details and constraints of the Tenant Improvements (TI’s) if there is an allowance?
- Who controls the build out for the space, Landlord or Tenant?
- How will all of these factors affect our total expenses per year?
Our team negotiates 50-70 tenant advisory assignments a year. Our fees are paid by the Landlord and cost you nothing. Why not skip the headache and use a professional to ensure that all these questions and more are addressed?
Office Lease Checklist
By: Troy Golden
October 6, 2016
When negotiating the lease for an office space, the same issues frequently arise. This article is the first in a series of four articles that provide office lease checklists for office tenants to use to review their office lease. Use the checklists below and in the articles that follow to make sure your office lease reflects what your tenant representation broker negotiated and to make sure problems won’t arise during your tenancy.
These office lease checklists are just a starting point. Office tenants should retain a qualified, experienced tenant representation broker to negotiate their lease and a commercial real estate attorney to negotiate and review their lease contract.
Office Lease Checklist: What is Being Leased?
· Does the square footage match what it should be? Is the loss/load factor satisfactory? Is the property described with enough detail that it could be found by someone who had never been there before?
· Does the property exactly match the provided floor plan? Does the floor plan also include incidental areas such as hallways, equipment areas, etc.?
· Does the project consist of multiple buildings and/or uses? Is there ongoing construction in the development? How will future construction affect property taxes and your operating expenses?
· Does the lease describe an agreed-upon method of measuring square footage?
· Does the lease include parking spaces? Are there any problems with the amount of parking available and the associated fees? How far is the parking from the building? Does the agreement allow the landlord to move parking to an off-site location? Are systems in place for movement to and from parking areas?
· Are common areas clearly and accurately delineated? How much access and use of common areas is the tenant allowed?
Office Lease Review: What is the Rent?
· What services will be paid by the landlord? Will the tenant be responsible for building taxes, maintenance, and/or insurance ?
· Is the tenant responsible for direct payment of utilities or other fees? What are the utility fees? When are they paid?
· Does the agreement provide any period of complimentary rent? How much will the rent increase by annually? On what date do increases take effect?
· How much is the Pro Rata Share? Does the agreement provide for changes?
· What will the total operating expenses for a year amount to? What about taxes?
· Is the tenant granted the right to review and confirm the operating costs?
· What about the building’s hours of operation? Do they make sense? What days/hours are excluded?
· Which hours of A/C and heat usage will be added as extra charges? For after-hours usage, how will fees be assessed? How much will charges amount to? Are charges in line with what they should be?
· Do the operating expenses, as defined in the agreement, match the modifications to base year recorded in Exhibit A? Does the agreement allow for avoiding a reassessment as required by Proposition 13?
Office Lease Checklist: What Does the Work Letter Cover?
Build-out controlled by landlord
- Tenant should have approval over any work plans.
- Commencement date should not occur until all work has been approved by tenant’s or landlord’s architect as substantially completed, AND the tenant has received a certificate of occupancy for the improvements.
- When will the tenant be responsible for costs that run over the allotted budget? Until everything on the punch list is finished there should be some hold back.
- Is the tenant granted a termination right if the leased property is not handed over in the agreed-upon time frame?
- Is the tenant allowed to enter the premises to install furniture, fixtures, etc. before work has been substantially completed?
- Will the construction be completed by bid?
- What control will the tenant have over the construction process? Will their approval be required for items such as the budget, major contractors, and schedule? If the tenant must pay construction costs it is crucial to have these requirements.
- Is the schedule for the tenant’s deliveries and approvals reasonable?
- Is the process for making changes to the original scope of work clear?
- How much is the construction management fee? Will it include hard costs or soft costs? Or some combination of the two?
- What will be considered a Tenant Delay? Must the tenant be given proper notice before the delay can be counted?
- Is there any security around the obligation for the tenant to pay for improvements?
- Will a warranty for the tenant improvements be supplied by the landlord? How long does it last?
Build-out controlled by tenant
- Will correct plans for the building prior to improvements be provided by the landlord?
- Have the proposed general contractor and architect been authorized by the landlord?
- Has the base building core been accurately described? No base building costs should be treated as improvement costs.
- Is there a tenant improvement allowance? How and when will it be paid?
- What can the tenant improvement allowance be used for?
- Will the tenant be able to meet the target completion dates set by the landlord?
- Can the commencement date be altered if the landlord causes delays?
Office Lease Checklist: Fine Print and Hidden Clauses
Remember to always read the fine print in your office lease. A quiet, hidden clause at the end of a real estate contract may nullify some of the more noticeable and appealing clauses at the forefront of the agreement.
Review the following items in your office lease:
Square Footage: Landlords may change the square footage to include closet space or patios due to a general lack of knowledge on the guidelines for official square footage recording. Upon questioning, a landlord may negotiate down on pricing when pressed on accurate measurements.
Hidden Fees in Office Lease for Fabricated Amenities: Look for crafty terminology to find included charges that are not standard, such as common room use, or exclusive residence use fees.
Look for Questionable Audit Phrasing: Be aware of the terminology of issues, problems or suggested future maintenance or service tucked into extensively worded audit reports. These issues could be problematic and costly if left to the new owner or tenant to resolve.
Get Precise Wording for Subletting: If the tenant should expect to ever need to sublet the real estate, it is important to first have an accord before signing a lease as to under what confines this can occur, for fairness on the part of both parties.
Protection from Lenders: A good part of ownership security is a guarantee of no harassment by lenders that have dealt with the landlord. A tenant is well advised to ensure that a contract states no responsibility on their part is made to the lenders. A warning sign of preexisting lender issues is offense taken by the landlord at the request of such from a possible tenant.
At Golden Group Real Estate, we specialize in tenant representation real estate services for office space users in the Chicago area, helping local business owners find office space and negotiate lease and purchase agreements. We never represent landlords, so we are prepared to negotiate aggressively on behalf of our tenant clients.