We are seeing a significant uptick in reviewing and negotiating commercial leases. For those who are new (and not so new) to the Manhattan office leasing scene, you need to be aware that the market and leasing terms and even the forms of lease used are unlike many other commercial real estate markets in America. Here are nine provisions (and, yes, one bonus) that all commercial tenants should request when negotiating an office lease in Manhattan, or, frankly, anywhere USA. Failing to consider these points can cost a tenant a significant amount of money… and aggravation.
- Space Measurement. Rentable, usable, carpetable-know what you are getting. Be aware of the so-called “loss factor” as you’re paying for that space too.
- Cost. How much is this lease going to cost? Taxes, Operating Charges. Other escalations. Get proper base year for determination of increases.
- Alterations. Make as few alterations to the space as possible. Let the landlord do as much work as possible and request that the landlord not charge the tenant for plan review of the initial alterations for the space. Remember that the sage advice “construction is never on time or on budget” also applies to leased spaces. Tenants also should have the right to make non-structural alterations to the premises without the consent of the landlord.
- Restoration at end of term. If the tenant alters the space with the landlord’s consent, the tenant shouldn’t be obligated to restore the space to its original use when the space is vacated.
- Assignment\Sublet. The standard for landlord approval should be “not unreasonably withheld, conditioned or delayed,” and the tenant should request the automatic right to assign or sublet the space if it sells the business, goes public, transfers its assets to a related entity or merges with another.
- There are three ways that landlords charge for electricity in NYC-direct meter, sub-meter and rent inclusion. The cheapest and best option for the tenant is direct meter.
- Condition of Premises. The tenant should request the following representations from the landlord; (a) the electrical capacity for the space; (b) that the premises do not contain asbestos or hazardous materials; and (3) that the HVAC, plumbing, bathrooms, electrical and fire panels and sprinkler be in good working order at the commencement of the term. Also confirm LL responsible or sprinkler installation maintenance.
- Security deposit. If the tenant is required to provide a cash security deposit, the landlord should represent in the lease how many days after the lease expires the security deposit will be returned to the tenant (e.g. 20 days). If the Landlord is asking for more than two months of security, then the tenant should request that if there are no monetary defaults under the lease, the security deposit is reduced to two months of fixed rent after the first year of the lease (this is known as “burn”).
- Move-in Freight elevator. Request free freight elevator usage for move in and move out of the space.
Here’s 10. (no extra charge): Good-Guy Guaranty Limit to fixed money payments only (e.g., monthly basic rent)-not all financial and performance obligations.
The above are just a few points or provisions to consider when leasing commercial space, and tenants should always retain an experienced commercial real estate attorney before entering into a commercial lease.
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