Tenant Rep Tip: Commercial Lease Flexibility

Myths About Leasing CRE

Today's Tenant Rep Tuesday Tip topic: Commercial Lease Flexibility - Ways to Make a Commercial Lease Flexible for your Business

When leasing commercial real estate, having a flexible lease will allow you to ensure the building you lease space from will accommodate your current and future needs. Flexibility is key. Here are a few ways for a commercial lease to be flexible for your business.

  • Shorter Lease Term – negotiate a shorter lease term (3 years) then you will have the ability to ensure that your business is going the way you want it to before committing to a longer lease term
  • Negotiate a Lease Termination Option – if you sign a 5+ year lease, negotiate to have the option to terminate the lease after the 3rd year, for example, to have a little bit of flexibility. The caveat however, is that you will more than likely have to pay some sort of early termination fee, which more than likely will be the landlords unamortized cost of tenant improvements & lease commissions as well as a predetermined number of rental payments.
  • Sublease & Assignment Options – Make sure you negotiate to have the ability to sublease all or a portion of your space to a 3rd party. What if you outgrow the space before the lease expires? What if you go out of business? What if you don't need to use all of the space and wish to sublease a portion of it? What if you sell the company? These are reasons why you want to ensure you get sublease and assignment options.
  • Expansion Options – This will give you the ability to take more space if needed. This may come in the form of a right of first offer (ROFO) or a right of first refusal (ROFR). With a ROFO the landlord must offer any newly available space to you before marketing it to others. A ROFR means the landlord has to offer you the deal that was agreed to with a 3rd party.

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