Leasing office space in the DC area can be a difficult process. Because of the competitive nature of DC’s commercial real estate market, it may seem like forever between beginning your search and closing the deal. From finding a suitable space and negotiations with landlords, you are probably drained by the time you come to the table to sign your lease.
Once you find the space and sit down to review the lease, the terms look like they were written in Chinese and you just don’t have the strength to interpret it all.
That’s where we come in. Check out the following list for an explanation of the most common office leasing clauses and what they mean.
At this point, you may be so happy you found a space that you feel like throwing a party. But in commercial real estate speak, parties are the people involved in the negotiation. This section names the parties—usually tenant and landlord—by their proper legal names (i.e. company names) and explains the terms used to describe them throughout the remainder of the lease.
This clause explains exactly what you are renting, including the common areas and parking facilities you have access to. If you’re lucky enough to be renting an entire building, the street address is the only thing listed.
Use and Exclusive
This clause explains how you’ll use the space. The amount of detail is dependent upon the landlord. Exclusivity only applies if the landlord promises you that they won’t rent to your competition. This usually only applies to larger tenants, but some building owners may want a variety of businesses in their building to make it more attractive.
Though it seems fairly straightforward, pay attention to your lease terms. These terms have both starting and ending dates, and some have several. Commercial leases are usually longer than residential ones, so don’t be surprised to commit to a term of three years or more. If your term begins on the date your lease is signed and you’re required to carry insurance, you have to be sure that your insurance also begins that same day. Be sure to negotiate important dates ahead of reviewing the lease so there won’t be any surprises at signing time.
The amount of rent you’re required to pay each month. Be sure to review this carefully, as there may be expenses you didn’t anticipate. If you have a full-service lease, the extra charges for services should be included here. Another typical lease type is the triple net (NNN) lease, where a tenant has to pay rent, utilities plus property taxes as part of the total rent.
In a residential lease, landlords typically can’t ask for more than two months of rent to protect them in case you fail to pay. This isn’t the case in commercial transactions, where landlords can ask for whatever amount they feel is necessary.
If you can’t come up with the required cash, landlords may opt for a letter of credit instead, which is where your bank states they’ve set aside a certain amount of money for the landlord in case you fail to meet your obligations.
The other great thing about commercial leases is you can many times get your deposit back before your lease is up, but it needs to be detailed here.
Your space may not be ready to move in on the day your lease is signed. This clause will detail what changes need to be made to the space, who is responsible for making them, and how they are paid for. A large part of your lease needs to cover every detail about this to avoid misunderstanding, especially if the building isn’t completed yet.
The sections above detail the most common parts of your commercial lease, but there’s often more than that.
Check your lease for the following information as well:
A new trend in commercial leasing is to include additional services with the lease for an extra fee. This may include usage of a fitness center, coffee service, concierge and front desk services and more.
What kind of insurance you’re required to have on your business and when it needs to start per the terms.
Security and Signage
How and where you can place signs for your business, who is responsible for security systems, personnel and locks.
Renewal and Subletting
Options to renew your lease or sublet your space to others.
What happens in the event that the building is foreclosed.
How and where disputes will be settled.
Who is responsible for legal fees and how much the other party can collect in the event of fees resulting from a dispute or non-payment of rent.