5 Things to Examine In your Lease Agreement
So you finally found the space you were dreaming of. Now it is time to work out the details beyond the first year’s rent. Each particular aspect of the lease has its own importance and to ensure the security of the great new spot you are locking down, do not just skim over all the nuances.
Tenant Advisory Group is your advocate when a landlord may be out of bounds with your lease agreement. Bill Himmelstein, founder and CEO of Tenant Advisory Group offers these five topics as ways to protect yourself before you sign on the dotted line.
1) Free Rent
The amount of months that the space is occupied and no rent is paid. Rent is the most obvious factor of the lease and a broker who understands the market is able to maneuver several months of free rent for you. The market standard for long term leases is to receive one month free per each year of the lease. So, if you sign a 6 year lease, then you should be expecting to get 6 free months.
2) Tenant Improvement Allowance
For the tenant who is looking to build out the available space, ensuring that the lease allows you to make those improvements and have them paid for by the landlord is critical. There can be a cash allowance which will go toward hiring a contractor. The amount that is allocated will depend on your financial stability as well as the terms and duration of the lease.
As landlords are in a constant effort to get the most bang for their buck, you need to be sure that there are clauses protecting you from unreasonable rent increases. Having a yearly increase over the course of the lease or a specific percentage by which rent can rise keeps you from losing control of your budget.
4) Securitization (security deposit)
All landlords will seek some sort of securitization on their leases. When a landlord knows the tenant well or believes that the tenant does not carry much risk, the security deposit becomes reduced. However, if you hold greater risk to your leased space, then it will be important to the landlord to securitize a portion of their out of pocket expenses to ensure that the landlord is protected and comfortable if there are any major issues. This deposit will allow for money to be refunded back or credited towards your rent as long as the tenant is not in default.
5) Termination Option:
The termination option is an extremely valuable piece of the negotiation. Your landlord will not offer this unsolicited. For leases that are longer than five years, it is critical to have termination rights. By negotiating this into the lease, if the rates dip below market value, then you will be able to exercise the right to terminate and move or use it as leverage to reduce your rate. Likewise, if rates have risen above your current levels, a right to terminate can be used to ensure you maintain below market rates.