An office lease agreement is a contract between the landlord and tenant to rent space. The tenant pays the rent and uses the space to conduct business ,and benefits because there is no capital expenditure to purchase the property. The landlord benefits because there is a steady stream of income.
About the Office Lease Agreement
A standard multi-tenant office lease agreement will either be a triple net (NNN) lease or a gross (all -inclusive) lease. If there are lots of smaller tenants in the office building and there is only one rental payment, it’s probably a gross lease.
All of the operating costs of the building, like taxes, insurance, and common area costs, are included in the rental payment. If there are additional payments beyond rent and utilities, it’s probably a triple net lease. The tenant will pay its proportionate share of the costs of operating and maintaining the property in addition to the lease cost.
The office lease agreement draft is usually provided by the landlord and contains language that favors the landlord. It may be a standard office lease agreement or a boilerplate contract, but it still needs to be read and understood. It’s important that all of the negotiated changes are in the document and that the tenant understands what he/she is agreeing to.
The landlord may state that the lease contains common or standard language, but that doesn’t mean the tenant has to accept it as-is. The landlord has a team representing his/her interests, so the tenant should have a team in place, too. A good commercial real estate attorney with experience can read the lease document and make sure the negotiated items are there, that you are protected both financially and legally, and that you understand the rights and obligations you are taking on when you sign the lease.
Single-Tenant vs. Multi-Tenant Locations
One thing to consider is if there are many tenants in the building or just one. If the tenant is the only occupant, then there is only one source of income for the landlord. The landlord will want to protect against the tenant’s default because mortgage, tax and insurance obligations don’t go away just because the building is vacant.
A multi-tenant building means the risk is spread out, so there’s a diversification of income sources. The landlord might be willing to make concessions about the creditworthiness of the tenant, but that will probably mean a higher rental rate for the tenant.
You’ve got your team in place and they’ve got your best interest at heart. Your commercial real estate attorney should understand the tenant’s side and have experience dealing with the landlord, meaning they know what to push on and how to get the best deal without tanking the deal. Your attorney should also economize on legal fees and protect the relationship, too.
Getting a Good Office Lease Agreement
It can seem like there’s a lot of lease document for a simple office transaction. A simple transaction usually doesn’t mean a short lease, however! Your commercial real estate attorney will help you understand the risk, rights and responsibilities of each party, and negotiate to protect your interests.
Disclaimer
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