Our live webinar on the secrets to leasing office space may have wrapped, but the questions continue to roll in.
Because the commercial real estate system is tough and MOST of us aren’t properly equipped to go through the process of finding space, then negotiating and signing a lease on our own.
On the webinar, we discussed why it’s important to employ a broker vs going around them — but we also covered the specifics you need to know in order to hold your broker accountable and to ensure you’re getting the most out of them.
If you haven’t watched it, I recommend you do. You’ll get all the info you need to protect your business from abusive landlords, shoddy contracts and unengaged brokers.
Special thanks to webinar co-host, Aron Susman, Co-Founder and CFO of TheSquareFoot
1. Early Exits: What are our options if we sign a 5 year lease and realize we need to leave after 2?
Your lease will have specifics around breaking a lease early and/or subletting your space. You’ll want to review this prior to signing a lease so you’re aware of the consequences upfront. If you’ve signed a lease, give it a review to understand what options are available to you.
If you need help offsetting the cost of your lease before it expires, the following are three ways in which you can do so:
– Subleasing: Work with your broker to find a sublessor to take over your space for the remainder of your lease. This will take time and it will cost you. Finding a subletter takes time and the process of executing a sublease is about 2x as long as the time it took you to execute your initial lease. This is a good solution when you’re looking to move out fully and can afford to foot the cost of the lease until the sublease process is finalized.
– PivotDesk: PivotDesk helps you in a few scenarios. First, if you’re looking to stay in the space but have a portion of the office you’re not using, you can offset your costs on the full space by inviting businesses to share your space until you’re ready to grow into it — or until your lease expires. Second, if you’re looking to leave your space completely, you can offset the cost of your lease by inviting a large team or multiple teams to use your space until the lease expires. These options will save you from dealing with the sublease process and/or the consequences of skipping out on a lease early. Find out how to post your space here.
– Landlord recapture: Don’t count on your landlord being open to this option, but it’s worth asking. In some cases, landlords will let tenants out of their lease to enable them to remarket the space for a much higher price. You can check in with your broker to see if this is a good option or connect with you landlord directly.
2. What is the purpose of rent abatement if all the lessor does is add months to the lease term?
Rent abatement is the scenario in which a tenant’s space is damaged and in need of repair. Landlords will allow tenants to put a hold on rent until the space is fully repaired and they are able to resume operations. In some cases, landlords will add time onto the end of your lease to account for the time rent payments were on hold.
The benefits of rent abatements are as follows:
– Less out of pocket for the tenant early in the lease term so they can use the capital to help with the cost of moving, office set up etc.
– Often, the dollars saved during the abatement are more than dollars spent on the time added onto the lease. i.e. the landlord may not add on as much time as your rent was on hold. Escalations and increases in rent can impact this. Sometimes, you can negotiate applying the value of your free month(s) post escalation or rent increase rather than using it in real time.
– The lessor has to add months onto the back end of the term for their own books with their lenders.
3. What are the risks of subletting part of your space but not going through your landlord?
These risks depend on what was stated in your lease agreement — and they vary widely. First and foremost, you risk losing your space to eviction. We recommend getting a feel for the strictness with which your landlord follows policy prior to getting involved in a lease. Your broker can help advise you on this early on if they have worked with the landlord previously.
4. When it comes to securing a space with very specific needs, what are some things to consider. For example, let’s say I’m looking for a space with catering abilities…
When you’re industry directly impacts the type of space you can obtain, the most important thing is that you’re asking the right questions up front.
In the case of a catering business, the first question should be to the landlords. They will likely have a strong opinion on accepting a company with a large kitchen operation into their building — so it’s your and your broker’s responsibility to understand the restrictions before going too far down the rabbit hole. Once you get the okay from the landlord, you’ll want to work with an engineer to understand the intricacies of your needs.
5. What are the key questions you should be asking your broker about a potential landlord in order to better understand what type of landlord they are and if they will be easy to deal with.
Asking your broker about potnetial landlords early on is exactly the right move. You want to know you’re in a space that has your business’s best interest in mind. Some questions you might ask include:
– Has the landlord recently (or do they plan to) infuse capital into improving this property?
– Does this landlord have a history of sitting on offers until they get better ones?
– How quickly do they process lease negotiations?
6. Can you tell us a little bit about the rules / legality / possibility for using residential spaces (i.e. apartments in NYC) for commercial use?
There are certificate of occupancy rules in terms of if a building is zoned for commercial / residential or both. Live / work spaces can qualify for both, but someone must be living there full time as well. When thinking about this type of situation, please consult an attorney.
7. Aron mentioned that brokers can help me mitigate the biggest risks associated with leasing space. What are the top 2 risks that I should be looking out for if I decide to conduct my office search myself?
The most important piece is your broker’s ability to negotiate with a landlord on your behalf. Landlords are executing contracts like this day in and day out. You need an expert (more importantly an advocate!) on your side to ensure your business is protected.
The second is that a broker can and will manage everything associated with finding and securing space to ensure you can remain focused on running your business. Taking management off of key projects to focus on finding and facilitating new space is expensive and can drastically effect your business.
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