It’s not about the Rental Rate
By Carl Condon, Vice President, Tenant Representation Group

Our ever-changing and complex global economy moves faster with each new technological advance, offering an endless supply of information at your fingertips. In this dynamic market, it’s important for a company to maintain lease flexibility to react quickly to business swings.

When entering a lease negotiation, tenants are often concerned primarily with rental rates because of its impact on cash flow and cost structure. Often two other factors hitting the bottom-line are overlooked: expansion and subletting/assignment rights.

To have the option, not obligation, to expand in a contiguous and orderly manner over a lease term is the best scenario for a tenant. As this is not always achievable, Rights of First Offer and Rights of First Refusal control expansion in a building.

If a tenant takes the time to ask questions about these rights, it will pay off in the long-term. Ask questions such as: What other space is available in the building? When does the adjacent tenant’s lease expire? Does the landlord have rights to relocate the adjacent tenant elsewhere in the building? These answers will help provide necessary information to structure a lease with maximum tenant benefits.

In the event that a company’s growth cannot be accommodated within a project, it is vitally important for the tenant to have the ability to adequately sublet their space. Being prepared can prove crucial if a sublease is necessary.

When subletting, start negotiation with a predefined scenario whereby the landlord will consent to a sublease without unnecessary notices or restrictions. It’s also important to limit the amount of time the landlord has to review a sublease request.

Throughout the subletting process, a tenant must require the landlord to act “reasonably.” The landlord should allow a tenant the right to a portion of the sublease profits, less any costs such as improvements, brokerage commissions and legal fees.

Don’t learn the hard way. Focusing solely on rental rates without recognizing the importance of expansion and subletting rights can have a costly financial impact later. Our dynamic business climate necessitates having both flexibility and control structured into a lease to maximize options in the event of an unforeseen change for a company.

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