Office Space Rental: Your Ultimate Choice

A cost analysis between buildings is essential for your business to properly estimate its future rental costs.

Permitted use of the premises. An office lease typically has a section that sets forth the permitted uses of the leased space. It is to your advantage to make this clause as broad as possible, because your business may diversify or you may want to sublease space to another business.

If the landlord is charging you separately for such services, try to negotiate a fixed fee or cap on the amount.

Rent escalations. Fixed rent over longer-term leases is relatively rare. 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 does not kick in for at least two years. Then, try to get a cap on the amount of each year’s increase. If you have to live with a rent escalation clause, consider a predetermined fixed amount. Common area maintenance, HVAC, and operating costs. Take into account operating costs that the landlord may pass on to a business. If the landlord is charging separately for these services, try to negotiate a fixed fee or cap on the amount.

The structure of the lease payments may also be important. For example, a startup business without much capital may want two or three months of free rent at the beginning of the lease, with a lower rental for the first year and increasing rentals for the second and third years.

Landlords often try to get tenants to pay for increases in property taxes on the building. Watch out for this because if the property has been held for a long time before being sold, the value of the property may be significantly higher for property tax purposes when sold. The end result is a higher property tax that you may be stuck paying. Tell the landlord that having to pay for such an increase is not fair to you.

Some leases require the landlord to provide and pay for basic services, while the tenant pays a pro rata share of any cost increases the landlord incurs for such services over the initial base year of the lease.

Keep in mind that different buildings have different costs and landlords may charge for services in a different manner. So the types and amounts of the costs that the landlord passes on to the tenant can have a big impact on the economics of a lease

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