When originally negotiating a lease, always “future think” so that what is to be is considered. This location is going to be the companies home for years. What is the plan for the next five years? Is the location dynamic enough to work today, in two years, how about five years?
Consider the end of life cycle for this location as well. Leases for locations are written for long periods of time with options to renew that can be very expensive to vacate if the fine print isn’t read carefully and negotiated back on the landlord where possible. All of the additions and changes made to the location may have to be returned to “original” state at the companies expense. The office adjacent to the lunch room that is turned into a shower facility, the cleanroom that is installed, the additional power conditioner installed in the lab, network and voice cabling, etc…all have to be removed upon vacating the location at the companies expense!
The landlord is best suited by writing leases nebulously and one sided. When it comes to the addendum for landlord paid improvements the lease may even include non-representation clauses which could cost thousands in tenant paid retrofits and loss of productivity. They may even cause a complete shutdown if a government inspection deems improvements were done illegally (no permits) or unsafely (no seismic bracing) and the “approval/OK to occupy” is withdrawn.
The following is a current (2012) clause in a lease that was accepted by the tenant:
“Landlord’s supervision or performance of any work for or on behalf of Tenant shall not be deemed to be a representation by Landlord that such work complies with applicable insurance requirements, building codes, ordinances, laws or regulations or that the improvements constructed will be adequate for Tenant’s use.”
Several other things to consider when negotiating landlord paid improvements; “build to suit” so to speak:
- The landlord is in business to make money. While they may be saving the upfront cost to the tenant, the landlord will get it back in the monthly lease payment with interest. The square foot cost already has “load” in it to offset the cost of the “improvements.”
- Understand the advertised square footage claim; measure the internal gross length and width of any location being considered. Compare that result to the advertised space; the difference is the load for improvements and CAM (common area maintenance). If a building or campus is not fully populated the CAM may be enormous if it is based on total “common area” being paid for by only the current tenants. Question how the locations advertised size was derived.
- If the improvements are to be paid by the landlord do not accept a coarsely written lease addendum defining the improvements. It needs to be very granular and define all of the tenant’s expectations and landlord’s commitment to meet those expectations.
- DP Wilder & Company also recommend that regular landlord/tenant walkthroughs, during construction, be written into the “improvements addendum”. Waiting until the construction is completed can delay relocation by weeks if the landlord’s interpretation of the finished suite is not right. Walkthroughs can also save a significant amount of money by allowing newly desired changes to surface during construction, when they are less costly to implement, than having to go into a second phase of construction.
- Be aware that the landlord’s “preferred vendor” list is made up of companies that have agreed (in most cases) to pay the landlord a fee for any work agreed to by a tenant on the landlords property. The tenant’s advantage in using these companies is that they have insurance certificates in place and can usually start work immediately. The disadvantage is that the tenant is going to pay more, up to 20% more, than using a non-preferred vendor.
When negotiating a lease it is always recommended to consult with your company’s attorney or a real estate attorney. Never sign a lease without having the interpretation of that lease by a professional who is going to read every word of this, potentially, 100 page document.
A good article from an attorney’s perspective is at:
Call DP Wilder & Company, the construction and relocation sanity company. (408) 440-8393