The negotiation of an office lease can unravel at any time. If negotiations break down early in the game, little damage results. You can simply move the field of play, and open discussions for different space. If, however, this occurs in the final innings, particularly after a lease has been drafted, significant financial losses and operational disruption
can result. Investments in architectural, engineering and legal fees can be lost, relocation alternatives can be missed, and time may be running short. The passage of time invariably tends to shift the balance of negotiating power toward the landlord's side of the table.
To protect your interests, you need to resolve as many issues as possible before the lease is drafted. While your broker has by then brought about agreement on such basic business terms as rent, area, and escalations, dozens of
other issues typically surface only with the presentation of the landlord's
draft lease. From your point of view, this is the worst time for disagreements or misunderstandings to emerge. Your urgency to close the deal and get the relocation program under way can now pressure you to
concede to unfavorable lease provisions.
A well-crafted lease proposal can prevent this situation from occurring.
This proposal covers in detail the terms and conditions, both legal and business in nature, of the deal. It is delivered to the landlord well before the drafting of a lease. Any issues between the parties that the proposal uncovers can then be negotiated weeks
or months sooner than is typical. Your legal fees are reduced, and your leverage is conserved.
Comprehensiveness is crucial. The proposal should be drafted by your broker with a high attention to detail, taking nothing for granted. It must be assumed by that any issues omitted or inadequately addressed will ultimately be resolved in the landlord's favor.
Among the questions,
typically omitted from lease proposals, that should be clearly addressed in yours
are . . .
What restrictions will be put on the use of the premises?
Which of the landlord's expenses will be included in calculating operating escalation, and which will be excluded?
How will you be charged for electricity usage?
If sub-metered, what is the landlord's profit margin?
What rights will you have to sublease the space? If there is a profit, which party will get the benefit?
What rights will you have to renew the lease? How will the renewal rent be determined?
What rights will you have if the landlord defaults on a mortgage or a ground lease?
What rights will you have to make alterations to the space?
What will your obligations be at the expiration of the lease?
Which party will pay for working drawings?
Which party will bear the cost of bringing the space into compliance with the Americans with Disabilities Act and other regulations?
During what hours will the space be heated and air-conditioned?
What penalties will accrue if the landlord does not deliver the space on time?
These are only some of the potentially deal-breaking or otherwise costly issues that the proposal should address. If they are resolved, final lease negotiations will be relatively swift and painless. If not, you preserve your options while looking elsewhere.