Landlord/Tenant (Commercial) Kit - Deluxe Edition

Addendum to
Real Estate Lease
(For the Benefit of the Tenant)

1.         Exclusions From Operating Costs

                        In the event the Tenant is required to pay a portion of the “operating costs” of the Building, the definition of "operating costs" shall not include:  (i) costs incurred in renovating or otherwise improving, painting or redecorating usable space for tenants; (ii) Landlord's costs of any services sold or provided tenants or other occupants for which Landlord is entitled to be reimbursed by such tenants or other occupants as an additional charge or rental over and above the basic rental and escalations payable under the lease with such tenant or other occupant; (ii) legal fees and other related expenses associated with the negotiation or enforcement of leases; (iv) all items and services for which Tenant reimburses Landlord or pays third persons or which Landlord provides selectively without reimbursement to one or more tenants or occupants of the Building (other than Tenant) which are not customary for normal office use; (v) leasing commissions and other similar payments paid to agents or employees of Landlord, independent brokers and other persons incurred in connection with Landlord's leasing activities; (vi) costs for space planning of tenant space in the Building; (vii) repairs or other work occasioned by fire, windstorm or other casualty or damage to the extent Landlord is reimbursed by insurance; (viii) costs for structural replacements to the steel frame, concrete floors, roof membrane of the Building; (ix) Building depreciation; (x) interest on debt or amortization payments on any mortgages or deeds of trust and rent under any ground leases; (xi) advertising and publicity expenditures; (xii) Landlord's reserve accounts; (xiii) any compensation paid to clerks, attendants or other persons in commercial concessions, if any, operation of any retail space or similar concessions; (xiv) costs of correcting construction defects in the Building; (xv) costs of cleaning up or removing asbestos or hazardous materials; and (xvi) capital improvements, capital repairs, capital equipment, and capital tools, all as determined in accordance with generally accepted accounting principles.  The operating costs shall be normalized to an assumed 100% occupancy of the Building.

2.         Property Tax

                    Notwithstanding anything to the contrary contained in the Lease, Tenant shall not be liable (directly or indirectly) for any increase in real property taxes during the term of this Lease (as the same may be extended from time to time) that results from a change in ownership of the Building or the land upon which the Building is located.

3.         Audit

                    Tenant shall have the right exercisable within six (6) months after the receipt of any year end statement that relates to operating costs of the Building to be paid by Tenant to cause the books and records of Landlord relating to its operation and management of the Building to be audited by a certified public accountant designated by Tenant, and reasonably acceptable to Landlord, to determine if the foregoing year-end statements are accurate and correct.  Such audit shall be paid for by Tenant, unless the audit discloses a discrepancy in said statement in favor of Tenant which is greater than five percent (5%) of the amount shown on the year-end statement, in which case the audit shall be paid by Landlord and the amounts due by Tenant pursuant to this paragraph    shall be adjusted accordingly.

4.         Condition of the Building

                    (a)  Landlord represents that the Premises, at the time of occupation , will be in good and reasonable condition and that the Premises will be suitable, in all material respects, for Tenant's use.

                    (b)  Landlord represents and warrants to Tenant that the Building does not present a health hazard to occupants or guests and that the Landlord is in compliance in all material respects with all laws, regulations, rules, ordinances, and court decrees affecting ownership and operation of the Building.

                    (c)  Landlord shall maintain the Building in good order and condition (except for damage occasioned by the act of Tenant or employees, licensees or invitees of Tenant, which damage shall be repaired by Landlord at Tenant's expense) at least comparable to other buildings of the class and nature of the Building.

                    (d)  Landlord shall adequately supply the Premises during reasonable and usual business hours with (i) electricity for lighting and operation of office machines, (ii) heating, ventilation and cooling reasonably required for the comfortable occupation of the Premises, (iii) elevator service, either automatic or with attendants, as Landlord elects, (iv) lighting replacement (for Landlord's designated Building standard lights), (v) restroom supplies, (vi) window washing, (vii) security service, (viii) janitor service, (ix) such other services and amenities as these customarily furnished in comparable buildings in the area ...

This is an amendment to that certain Lease dated ______________, 20___ (the "Lease") by and between __________________ ("Lessor") and _________________ ("Lessee").

WHEREAS, the parties wish to amend certain terms of the Lease; and

WHEREAS, certain capitalized terms not otherwise defined herein are defined in the Lease;

THEREFORE, the parties agree as follows:

1.  Rent Change. Section ___ of the Lease is hereby amended to provide monthly rent, effective as of _______________, 20___, shall be $____________.

2.  Other Changes. The Lease is hereby amended in the following additional manner:

1. [Describe amendment].
   
   
2. [Describe amendment].
   
   
3. [Describe amendment].
   
   

3. Entire Agreement. This Amendment, together with the Lease, constitutes the final, complete and exclusive statement of the agreement between the parties pertaining to their subject matter and supersedes any and all prior and contemporaneous understandings or agreements of the parties.

4. Modification. This Amendment may be supplemented, amended or modified only by the mutual agreement of the parties. No supplement, modification or amendment of this Amendment shall be binding unless it is in writing and signed by both parties.

5. Inconsistency. In the event...

ASSIGNMENT OF LEASE

THIS ASSIGNMENT OF LEASE ("Agreement") is made and entered into as of this day of , 20__ ("Effective Date"), by and between __________________, ("Assignor"), __________________________ ("Assignee").

RECITALS:

1. Assignor, as lessee, has executed that certain Lease, dated ___________ (the "Lease"), covering those certain premises and related improvements described on Exhibit A attached hereto (the "Premises").
   
   
2. Assignor desires to assign its rights as lessee in the Lease to Assignee, and Assignee desires to accept the assignment of the Lease and to assume the obligations of Assignor under the Lease, on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the promises and conditions contained in this Agreement, Assignor and Assignee hereby agree as follows:

1.  Assignment and Assumption of Lease. Subject to the provisions of this Agreement, Assignor does hereby assign, transfer, set over and deliver to Assignee all of its right, title and interest in and to the Lease, and by accepting this assignment and by the execution of this Agreement, Assignee hereby assumes the payment and performance of, and agrees to pay, perform and discharge, as a direct obligation of Assignee, all of Assignor’s duties and other obligations under the terms, covenants and conditions of the Lease, including, without limitation, the payment of rent and compliance with all terms, covenants and conditions of the Lease. Except as otherwise expressly provided in this Agreement, all the terms, covenants and conditions of the Lease remain in full force and effect as applied to Assignee.

2.  Restrictions. The assignment of the Lease is made subject, subordinate and inferior to...

CHECKLIST FOR OFFICE LEASES

1. Space:

(a) What is the rentable square footage?
(b) What is the usable square footage?
(c) Is rent based on usable or rentable square footage?
(d) Verify square footage number provided by the landlord.

2. Permitted Uses of the Premises:

(a) What uses of the premises are permitted?
(b) Is the permitted use clause broad enough for possible changes in the business?
(c) Is the permitted use clause broad enough for potential assignments or subleases?
(d) Can the use clause be drafted to include “any lawful purposes”?
(e) Can uses be changed with landlord’s consent, which consent can’t be unreasonably withheld or delayed?

3. Primary lease term:

(a) What is the commencement date of the lease?
(b) What happens if the space is not ready on the commencement date? Is there rent abatement, monetary damages, right to cancel the lease, or other remedies specified?
(c) What is the termination date?
(d) Does the landlord have the right to terminate early without cause?
(e) Does the tenant have the right to terminate early by payment of a fee?

4. Rentals:

(a) What is the base rent for the primary term?
(b) Are there escalation clauses?
(c) Are there cost of living increases?
(d) Is there a cap on any rent increases?
(e) Is there a reasonable grace period and written notice before a late charge is imposed?

5. Common area maintenance, HVAC, and Operating costs:

(a) What does the tenant have to contribute for common area maintenance, ventilating, heating, air conditioning, and other building operation costs?
(b) Is there a cap?
(c) Can the amount be increased each year?
(d) Real estate taxes and other impositions:
     (i) Does the tenant have to pay a portion of the real estate taxes?
     (ii) What increases over base year are allowed?
     (iii) Is there a cap on tax increases?
     (iv) Does the tenant have to pay increased taxes that may occur on sale of the building?
(e) Are there any special provisions or exceptions on the payment of these expenses?
(f) When is payment due?
(g) What detailed reports does the landlord have to provide the tenant showing the actual expenses?
(h) What audit rights does the tenant have to review the landlord’s books and records?
(i) Are there provisions made for weekend and holiday service? What are the charges?
(j) Does the tenant have a remedy for service interruption?

6. Tenant Improvements:

(a) What tenant improvements will be necessary?
(b) What is the cost?
(c) How much time will it take to complete the tenant improvements?
(d) Will the landlord contribute to the cost for the tenant improvements?
(e) What approvals will be necessary?
(f) What permits will be necessary?
(g) Does the landlord or the tenant own any improvements?

7. Repairs and replacements:

(a) What responsibility does the tenant have for repairs or replacements?
(b) What responsibility does the landlord have for repairs or replacements?
(c) At the end of the tenancy, is tenant’s obligation to return the premises in same condition at the beginning of tenancy, excluding (1) ordinary wear and tear, (2) damage by fire and other unavoidable casualty, and (3) alterations previously approved by landlord?

8. Utilities:

(a) Direct supply or individually metered?
(b) Method of computing payment?

9. Assignment and subletting:

(a) Is the landlord’s written approval required?
(b) What standard is there for approval? absolute discretion? reasonable approval?
(c) Does the landlord have the right to cancel the lease if notified of a proposed assignment of sublease?
(d) If the assignment or sublet is at a higher price than the base rent, who keeps the excess? or what split is there?
(e) Can the lease be assigned to affiliates of the tenant without landlord approval?
(f) Can the landlord terminate the lease if the stock ownership of the tenant changes?

10. Subordination and attornment:

(a) All present or future mortgages?
(b) Execution of estoppel certificates required?
(c) Tenant agrees to attorn to landlord’s successor in interest?

11. Destruction:

(a) Is there a right of cancellation for the tenant in the event of destruction?
(b) What obligation does the landlord have to rebuild?
(c) Does the tenant share in any proceeds from insurance?

12. Indemnity and Disclaimer:

(a) Indemnity mutual or tenant only?
(b) Waiver of claims mutual or tenant only?
(c) Waiver of subrogation?
(d) Landlord liability limited to interest in property?

13. Default:

(a) Does the tenant have a cure period after notice of a breach?
(b) What remedies are available for breach?

14. Landlord’s warranties:

(a) Quiet enjoyment of premises by the tenant?
(b) First...

CONSENT BY LESSOR TO ASSIGNMENT OF LEASE

THIS CONSENT BY LESSOR TO ASSIGNMENT OF LEASE ("Consent") is made and entered into as of this day of , 20___ ("Effective Date"), by _______________________ ("Lessor") in favor of _______________________ ("Assignor").

RECITALS:

A. Assignor, as lessee, and Lessor have executed that certain Lease, dated _________ (the "Lease"), covering those certain premises and related improvements described on Exhibit A attached hereto (the "Premises").

B. Assignor desires to assign its rights as lessee in the Lease to _____________ ("Assignee") and Assignee desires to accept the assignment of the Lease and to assume the obligations of Assignor under the Lease, and Lessor is willing to consent to such assignment and assumption on the terms and conditions set forth in this Consent.

NOW, THEREFORE, in consideration of the payment by Assignor of Dollars ($), payable on or before ______________, 20____, the parties hereby agrees as follows:

1. Consent to Assignment. Lessor hereby consents to the assignment of the Lease to Assignee on the terms and conditions of the Assignment of Lease of even date herewith delivered to Lessor. Lessor’s consent to the assignment of the Lease to Assignee shall not be deemed to be a consent to any other or subsequent assignment.

2. Release. Lessor, on behalf of itself and its representatives, agents, heirs and assigns, release and discharge Assignor, Assignor’s former, current or future officers, employees, representatives, agents, fiduciaries, attorneys, directors, shareholders, insurers, predecessors, parents, affiliates, benefit plans, successors, heirs, and assigns from any and all claims, liabilities or obligations of every kind and nature, whether now known or unknown, suspected or unsuspected, which Lessor ever had or now have against any of them. The released claims include without limitation any claims arising out of or related to the Lease and/or any of the conditions, events, transactions or series of transactions related thereto. The released claims also specifically include all claims arising under any federal, state or local law or statute; the law of contract and tort; and any claim for attorneys’ fees.

3. Waiver of Unknown Claims. Lessor acknowledges that there may exist claims or facts in addition to or different from those which are now known or believed by it to exist and represent that, by means of the release set forth in paragraph 2 above, it is nonetheless their intention to fully settle and release all such claims, whether known or unknown. Lessor therefore expressly waives the protection of California Civil Code Section 1542 and any other similar statute, rule or law. Section 1502 provides:

Lessor agrees never to commence or prosecute any action against Assignor or any of the other parties identified in paragraph 2 above based in whole or in part upon any of the claims described in paragraph 2 above.

4. Entire Agreement. This Consent constitutes the entire agreement of Lessor and Assignor pertaining to its subject matter and supersedes any prior or contemporaneous negotiations, representations, agreements and understandings of the parties with respect to such matters, whether written or oral. The parties acknowledge that they have not relied on any promise, representation or warranty, expressed or implied, not contained in this Consent. Parol evidence will be inadmissible to show agreement by and among the parties to any term or condition contrary to or in addition to the terms and conditions contained in this Consent.

5. Interpretation; Amendment. In interpreting the language of this Consent, the Lessor and Assignor shall be treated as having drafted this Consent after....

CONSENT BY LESSOR TO SUBLEASE

RECITALS:

A. Lessee, as lessee under the Lease, and Lessor have executed that certain Lease, dated _________ (the "Lease"), covering those certain premises and related improvements described on Exhibit A attached hereto (the "Premises").

B. Lessee desires to sublease [all] [a portion] of the Premises to _____________ ("Sublessee") and Sublessee desires to accept a sublease in the form attached as Exhibit B (the "Sublease"), and Lessor is willing to consent to the Sublease on the terms and conditions set forth in this Consent.

NOW, THEREFORE, in consideration of the payment by Lessee of Dollars ($ __), payable on or before ______________, 20____ to Lessor, the parties hereby agree as follows:

1. Consent to Sublease. Lessor hereby consents to the Sublease and the transactions contemplated thereby. Lessor’s consent to the Sublease shall not be deemed to be a consent to any other or subsequent assignment or sublease.

2. Continuing Liability. Lessee shall continue to be liable under the Lease, notwithstanding the Sublease.

3. Entire Agreement. This Consent constitutes the entire agreement of Lessor and Lessee pertaining to its subject matter and supersedes any prior or contemporaneous negotiations, representations, agreements and understandings of the parties with respect to such matters, whether written or oral. The parties acknowledge that they have not relied on any promise, representation or warranty, expressed or implied, not contained in this Consent. Parol evidence will be inadmissible to show agreement by and among the parties to any term or condition contrary to or in addition to the terms and conditions contained in this Consent.

4. Interpretation; Amendment. In interpreting the language of this Consent, the Lessor and Lessee shall be treated as having drafted this Consent after meaningful negotiations. The language in this Agreement shall be construed as to its fair meaning and not strictly for or against either party. This Consent may be modified only by a writing signed by Lessor and Lessee.

5. Attorneys’ Fees. If any party hereto fails to perform any of its obligations under this Consent or if a dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Consent, and an action is filed, the prevailing party in any such action shall be entitled to recover from the other party, in addition to any other relief that may be granted, its court costs and reasonable attorneys’ fees and disbursements, including such incurred in connection with any appeal.

6. Counterparts. This Consent may be signed in counterparts and all counterparts so executed shall constitute one contract, binding on the all parties hereto, even though all....

DEMAND FOR RENT

[ON LETTERHEAD]

[Date]

Via Certified Mail and Fax
____________________________
____________________________
____________________________
____________________________

Re: Overdue Rent

Dear _____________:

Notice is hereby given that we have not received your rent payment of $__________ that was due on _____________, 20___, pursuant to that certain [Lease] [Rental Agreement] dated ______________, ____ (the "Agreement").

Under the terms of our Agreement, an overdue rent payment results in your owing a late charge of $_________. We must have your payment of the overdue rent plus the late charge immediately, and in no event in our hands later than by 12:00 noon, ___________, 20___. If we do not have payment by such time, we may be forced to commence legal proceedings against you ...

[On Letterhead]

[Date]

[Name and Address]

Re: Notice of Change in Rent

Dear _____________:

Please be advised that pursuant to the terms of that certain [Lease] [Rental Agreement] dated ___________, 20___, your rent for the space at [Address] will increase to $____________ per month....

OFFER TO LEASE SPACE

[ON COMPANY LETTERHEAD]

[DATE]

Re:   Offer to Lease Space in Your Building

Dear _____________:

We have now reviewed your property at [address] (the "Property") and are quite interested in leasing space in the Property. We believe we would be excellent tenants and are prepared to consummate a lease as soon as possible.

As a way to commence our discussions, let us lay out some of the key terms which we believe would be acceptable to us:

OPTION TO EXPAND SPACE LEASED IN BUILDING

Landlord hereby agrees that Tenant shall be offered the right of refusal to lease all or any portion of [other space in the building] [designated space] (the "Expansion Space"), as it may become available for lease from time to time. Whenever any portion of the Expansion Space becomes available for lease, Landlord shall provide Tenant with written notice of such availability, which notice shall include the date when Tenant would begin occupancy of....

OPTION TO RENEW REAL ESTATE LEASE

Example 1

Tenant shall have the option to renew this Lease for an additional period of ______ (_____________) years (the "Renewal Term") by giving Landlord notice before the expiration of the initial term. Such Renewal Term shall be subject to all of the terms, covenants, and conditions of this Lease.

Example 2

Provided that Tenant is not in default beyond any applicable period to cure, at any time from the exercise of the option until the expiration of the initial term, Tenant....

REAL ESTATE SUBLEASE

THIS SUBLEASE, executed by and between _______________________ (hereinafter called “Sublessor”), and the undersigned lessee (hereinafter called “Sublessee”), whereby for and in consideration of the covenants and agreements hereinafter set forth to be kept and performed by the parties hereto, Sublessor, hereby subleases to Sublessee and Sublessee does hereby take, lease, and hire from Sublessor the Leased Premises hereinafter described for the period, and at the rental, subject to, and upon the terms and conditions hereinafter set forth, as follows:

Section 1.01. Leased Premises. Sublessor leases to Sublessee, and Sublessee leases from Sublessor those certain premises situated in the City of ____________________, County of _________________, State of ____________________, commonly described as _______________ (hereinafter called the “Leased Premises”), more fully described on Exhibit 1 hereof.

Section 2.01. Sublease Term. The Term of this Sublease shall commence on ______________ (hereinafter called the “Commencement Date”), and shall expire on ______________ unless sooner terminated pursuant to the terms of this Agreement (the “Term”). If there are any option terms, such terms will be reflected on an Addendum to this Sublease.

Section 2.02. Acceptance of Leased Premises. Sublessee’s occupancy of the Leased Premises shall be conclusive evidence of Sublessee''s acceptance of all improvements constituting the Leased Premises, in good and satisfactory condition and repair. Sublessee shall accept possession and use of the Leased Premises “as is” in their condition existing as of the date hereof with all faults. Sublessee, at Sublessee’s sole cost and expense, shall promptly comply with all applicable laws, ordinances, codes, rules, orders, directions and regulations of governmental authority governing and regulating the use or occupancy of the Leased Premises as may now or hereafter be in effect during the Term hereof and shall if so required make any alterations, additions or changes to the Leased Premises as may be required by said laws, ordinances, codes, rules, directions and regulations.

Section 2.03. Holding Over. Any holding over of the Leased Premises by Sublessee after the expiration of the Term hereof shall only be with the written consent of Sublessor first had and obtained and shall be construed to be a tenancy from month to month at a rental per month, or portion thereof, in an amount equal to one hundred fifty percent (150%) of the rent due Sublessor for the month immediately preceding such holding over, and shall otherwise be on the same terms, conditions and covenants herein specified.

Section 2.04. Sublease Termination and Condition of Premises. Upon the termination of this Sublease for any reason whatsoever, Sublessee shall return possession of the Leased Premises to Sublessor or Sublessor’s authorized agent in a good, clean and safe condition, reasonable wear and tear excepted. On or before, and in any event no later than thirty (30) days following the date Sublessee vacates the Leased Premises and returns possession of same to Sublessor, Sublessee and Sublessor, or authorized agents thereof, shall conduct a joint inspection of the Leased Premises. Sublessee at its cost shall thereafter promptly repair or correct any defects or deficiencies in the condition of the Leased Premises, reasonable wear and tear excepted.

Section 3.01. Payment of Rent. Sublessee hereby covenants and agrees to pay rent to Sublessor, without offset or deduction of any kind whatsoever, in the form and at the times as herein specified. All rent shall be paid to Sublessor at the address specified in this Sublease unless and until Sublessee is otherwise notified in writing. Base Minimum Rent payments in the monthly amount set forth below shall be payable monthly, in advance, due on the first (1st) day of each calendar month commencing on the Commencement Date hereof and delinquent if not paid on or before the third (3rd) day of the month throughout the Term of this Sublease. Rent for any period which is for less than one month shall be a pro rata portion of the monthly installment. The required payments under Article 6 and all other charges payable by Sublessee shall be deemed to be additional rent.

Section 3.02. Base Minimum Rent. Base Minimum Rent shall be computed as follows:

Section 3.03. Delinquent Payments. In the event Sublessee shall fail to pay the rent or any installment thereof, or any other fees, costs, taxes or expenses payable under this Sublease within five (5) days after the said payment has become due, Sublessee agrees that Sublessor will incur additional costs and expenses in the form of extra collection efforts, administrative time, handling costs, and potential impairment of credit on loans for which this Sublease may be a security. Both parties agree that in such event, Sublessor, in addition to its other remedies shall be entitled to recover a late payment charge against Sublessee equal to five percent (5%) of the amount not paid within said five (5) day period. Additionally, any past due amounts under this Sublease shall bear interest at the rate of the lesser of one and one-half percent (1-1/2%) per month or the maximum rate permitted by applicable law. Sublessee further agrees to pay Sublessor any cost incurred by Sublessor in effecting the collection of such past due amount, including but not limited to attorneys'' fees and/or collection agency fees. Sublessor shall have the right to require Sublessee to pay monies due in the form of a cashier''s check or money order. Nothing herein contained shall limit any other remedy of Sublessor with respect to such payment delinquency.

Section 3.04. Security Deposit. On execution of this Sublease, Sublessee shall deposit with Sublessor a sum equal to ____________ (the “Security Deposit”) in order to provide security for the performance by Sublessee of the provisions of this Sublease. If Sublessee is in default, Sublessor may, but shall not be obligated to use the Security Deposit, or any portion of it, to cure the default or to compensate Sublessor for damage sustained by Sublessor resulting from Sublessee''s default. Sublessee shall immediately on demand pay to Sublessor a sum equal to the portion of the Security Deposit expended or applied by Sublessor as provided in this paragraph so as to maintain the Security Deposit in the sum initially deposited with Sublessor. At the expiration or termination of this Sublease, Sublessor shall return the Security Deposit to Sublessee or its successor, less such amounts as are reasonably necessary to remedy Sublessee''s defaults, to repair damages the Leased Premises caused by Sublessee or to clean the Leased Premises upon such termination, as soon as practicable thereafter. In the event of the sale or other conveyance of the Leased Premises, the Security Deposit will be transferred to the purchaser or transferee and the Sublessor will be relieved of any liability with reference to such Security Deposit. Sublessor shall not be required to keep the Security Deposit separate from its other funds, and (unless otherwise required by law) Sublessee shall not be entitled to interest on the Security Deposit.

Section 4.01. Permitted Use. The Leased Premises are to be used by Sublessee for the sole purpose of _____(e.g., general office use)_____ and for no other purpose whatsoever. Sublessee shall not use or occupy the Leased Premises or permit the same to be used or occupied for any use, purpose or business other than as provided in this Section 4.01 during the Term of this Sublease or any extension thereof.

Section 4.02. Prohibited Activities. During the Term of Sublease or any extension thereof, Sublessee shall not:

The AllBusiness.com Practical Guide to Office Leases

Overview

Most small businesses require leased space. And as your business grows, you will need to add additional space. A lease agreement constitutes a significant financial commitment for most businesses, yet many people blindly sign leases that bind their business for many years without any meaningful attempt to negotiate the terms of the lease.

In this Guide, we tell you what to look out for when signing a lease and what you should try to negotiate in a good lease. However, having an experienced real estate attorney review the lease before you sign it is always a good practice.

Negotiating an Office Lease

When you find a great space for the business and are ready to lease, the landlord typically hands you a preprinted agreement that looks (for all the world) just the way leases were meant to look. The landlord is likely to call this the standard lease, as if the perfect form of a lease agreement had been chiseled in stone eons ago.

Pay attention here: This form is undoubtedly totally one-sided in favor of the landlord. No "standard" lease exists. And regardless of whether the form looks standard or preprinted, don't be afraid to carefully review and negoti­ate the lease.

Your ability to negotiate changes to an office lease is dependent on how much leverage you have. Are other companies vying for the space? Has the space been vacant for a long time? Are you willing to pay a good rent? Let's face it: If Microsoft and General Motors are about to engage in a bidding war for the same prime space you're interested in, all of your negotiating skills mean very little.

Assuming that you do have some leverage, the following sections detail the key provisions of an office lease. Appendix A contains a comprehensive checklist of issues to consider when negotiating an office lease.

Rent

A cost analysis between buildings is essential for your business to properly estimate its future rental costs.

Any analysis of a given space's desirability typically begins with the fixed rent that the landlord quotes you. But this starting point must be evaluated in light of other factors. For example, landlords may quote a monthly lease rate of $2 per square foot, typically meaning rentable square footage. The actual usable square footage of the premises is the space that you actually can use for your business operations.

Usable square footage is less than rentable square footage because it deducts common areas such as public corridors, elevators, lobbies, and bathrooms from the overall calculation. So, to compare apples to apples, you have to know the exact usable square footage of each space you are considering.

The structure of the lease payments may also be important. For example, a start-up business without much capital may want two or three months of free rent at the beginning of the lease, with a lower rental for the first year and increasing rentals for the second and third years.

When analyzing the cost of space, you must also take into account other operating costs that the landlord may pass on to you, the tenant. Some leases require the tenant to pay for all cleaning, building security, air-conditioning, maintenance, and so on (a so-called Triple Net Lease). And some leases require the landlord to provide and pay for basic services, while the tenant pays a pro rata share of any cost increases the landlord incurs for such services over the initial base year of the lease.

Keep in mind that different buildings have different costs and landlords may charge for services in a different manner. So the types and amounts of the costs that the landlord passes on to the tenant can have a big impact on the economics of a lease.

Permitted uses

The lease typically has a section that sets forth the permitted uses of the leased space.

It's to your advantage as the tenant to make this permitted use clause as broad as possible, even if your intended purpose is initially narrow. Because your business may grow and your plans may change, you want the flexibility to use the space in any reasonable, legal manner.

Also, a narrow permitted use clause can often serve as a restriction on your ability to assign or sublet the space.

So what's the best permitted use clause? See if you can get the landlord to agree to something like the following:

Tenant is permitted to use the premises for any legal purpose or business.

If the landlord doesn't go for that, at least spell out all of your expected or potential uses.

You may also want to take a look at Appendix B—an Addendum to Real Estate Lease that benefits the tenant.

The term of the lease

The length of the lease has a significant impact on the rental rate. Landlords typically like longer term leases and are more willing to make concessions for such leases. With a long lease, the landlord enjoys the financial security of a regular rental stream over a number of years. And the landlord can avoid the hassle and expense of re-leasing the space.

From the tenant's side, a long term lease has both benefits and risks. The benefit is knowing that the premises are available at a predictable cost for the long term. The risk is that the company may outgrow the space, may need less space as its business contracts, or is locked into paying what turns out to be above-market rent if demand for rentals subsequently declines.

If you can get it, the best of all worlds is a shorter term lease with renewal options. You are usually much better off getting a 2-year lease with four 2-year renewal options rather than getting stuck in a 10-year lease.

Rent escalation

Fixed rent over longer term leases is relatively rare, because landlords often try to build in rent escalation provisions.

Sometimes, landlords insist on annual increases based upon the percentage increases in the Consumer Price Index (CPI). If you are confronted with such a request, do two things. First, try to arrange that the CPI does not kick in for at least 2 years. Second, try to get a cap on the amount of each year's increase (for example, no more than a 3 percent increase in any year). Here is a sample clause for doing that:

If you have to live with a rent escalation clause, consider a predetermined fixed amount, like

• $2,000 a month for the first year
• $2,200 a month for the second year
• $2,400 a month thereafter

Such a provision gives you more predictability in planning your business. (Note: Make sure that your business plan projections adequately reflect such increases.)

Operating costs

The starting point for determining your operating costs is identifying what services the landlord provides, what services the tenant must get directly, and who bears the cost. The following are common costs for office space:

• Heating, ventilating, and air conditioning (commonly referred to as HVAC)
• Cleaning and janitorial services
• Electricity
• Repairs
• Security

If the landlord is charging you separately for such services, try to negotiate a fixed fee or cap on the amount.

If the landlord pays for basic services but charges you for increases in the cost of rendering those services, ask how the landlord is calculating that increase. For example, some landlords may figure the base year for calculating the starting point of costs as one in which the building is not fully occupied (heat not necessarily fully on, not all lights on, and so on). In this case, your company's moving in will naturally cause cost increases. Get the landlord to count the base-year costs as if the building were fully occupied and operational.

Landlords often try to get tenants to pay for increases in property taxes on the building. Watch out for this because if the property has been held for a long time before being sold, the value of the property may be significantly higher after the sale for property tax purposes. The end result is a higher property tax that you may be stuck paying. Tell the landlord that having to pay for such an increase is not fair to you.

Landlords also try to throw in items as operating expenses that should really be capital expenses (and thus not properly chargeable to a tenant). So make sure that the definition of operating expenses that you may be liable for doesn't include capital improvements, financing charges, and other capital costs.

In addition, some landlords will charge extra for services supplied other than on "business days" or "after hours." So look at this clause carefully and try to limit charges for extra services to those that are truly extraordinary and not to be incurred on a regular basis. This can be of particular importance for a start-up business, where workers often spend nights and weekends working.

Remember, the operating costs section of your base can mean big, unexpected costs, so carefully anticipate the problems!

Tenant improvements and alterations

Most form leases provide that the tenant can't make any alterations or improvements to the premises without the landlord's consent. Those provisions are typically too restrictive and you should attempt to negotiate changes. For example, try to get the right to make non-structural changes or changes costing less than $5000 without the need to obtain the landlord's consent.

Before you can occupy the space, the premises may need some improve­ments or alterations to make it appropriate for your business needs.

Here are some key questions to answer about the initial tenant improve­ments and alterations:

• What is the scope of changes?
• What is the cost?
• How much time is needed to complete the improvements?
• What permits or approvals will be necessary?
• Will the landlord contribute to the payment for the improvements?
• Who will own the improvements once the lease is terminated?

Try to get a clause stating that you are allowed to remove any trade fixtures and alterations that you pay for, provided that you repair any damages to the premises.

If you anticipate the need to make alterations or improvements in the future, the lease should provide that you may make them with the landlord's consent, but that the consent won't be unreasonably withheld or delayed.

Also, be aware of the clause that says that at the end of the lease you have to return the premises in their original condition. Try to negotiate a clause that states the following:

Assignment and subletting

The assignment and subletting clause of the lease can prove to be a very important provision. Typically, the landlord's lease form states that the tenant may not assign or sublet the lease without the landlord's prior consent, with such consent to be granted or withheld in the landlord's sole discretion.

You should attempt to modify such a clause in several ways. The ideal change provides that an assignment or sublease requires the landlord's consent, but that the consent cannot be unreasonably withheld or delayed. (A landlord is unlikely to give you the total right to assign or sublease without some kind of approval procedure.)

If the landlord does give you a reasonableness standard on your proposed assignment or sublease, he may insist upon a recapture right. That is, the landlord may want to recapture the space for his own use or re-leasing. This condition is generally acceptable, as long as the landlord pays you any profit you expect to make on the assignment or sublease.

If an assignment or subletting comes with potential profit, then the landlord typically expects to share in that profit. Often, the split is 50-50, but make sure to recoup any expenses you incur in getting an assignee or subtenant before a profit split.

A start-up tenant should also negotiate enough flexibility in the assignment and subletting clause to allow for mergers, reorganizations, and share ownership changes.

See if you will be allowed to freely assign and sublet the lease to the company's subsidiaries and affiliates.

Be particularly leery of a clause that says a change in more than 50 percent of the company's stock ownership will be deemed to be an assignment that is prohibited without the landlord's approval. A prohibited assignment can result in the landlord terminating a favorable lease. As the company grows and new people invest in the company, this clause can be inadvertently triggered.

This Guide contains a sample Assignment of Lease (Appendix C) and a sample Office Sublease (Appendix D)

Renewal options

Because your company's future space needs are uncertain, renewal options for the lease can be quite helpful. But some landlords may be reluctant to grant...