Different Strokes for Different Folks
As the saying goes: it takes two to tango. It's something to keep in mind during your company's interactions with its landlord. Compared to many business contracts, a lease is a long-term, high-value relationship, and with the stakes as high as they are, it pays to know your partner.
Unfortunately, that's easier said than done. Landlords vary wildly in how they operate, what prices they charge, and what they expect from you as a tenant. This is because landlords come in a variety of different corporate structures and have different financial terms and conditions required to meet their investment needs. If you aren’t intimately familiar with the market, it can make your head spin. And even worse, you may lose negotiating leverage.
While it's difficult to predict exactly how each individual landlord will work with you, knowing how different types landlords handle different types of issues is a key step to nailing down your ideal office.
Typical commercial leases can range from 20 pages to more than 100, so a full discussion of all the different issues encompassed by a lease is well beyond the intent of this page. That said, there are a handful of key issues that you’ll want to be aware of because different types of landlords handle them in different ways. In no particular order, these include:
- Lease term – will your landlord consider shorter term options such as 1 or 3 years or will they require a commitment of 5 or more years?
- Flexibility provisions such as expansion, contraction, early termination, rights on contiguous space etc. You get the idea. And for many early stage companies, flexibility is key.
- Lease Credit Issues – will the landlord require a Personal Guarantee?
- Assignment and Subletting provisions – think of this as another form of flexibility should your company no longer be able to occupy the space.
- Lease Security – how much money will be required up front, and how does this impact your burn rate?
- Pricing. Seems obvious, but it can vary quite a bit between landlords depending on the particular building.
- Tenant Improvement Allowance – how much buildout will you require, and how much of the bill will the landlord foot?
- Annual Expense pass-throughs – these can add up quickly so it’s important to know the numbers up front.
- Risk of terms changing unfavorably after a sale.