March 2, 2016
When a startup or new business is looking for office space they should seek the most flexible terms possible. Even if these businesses have a growth plan for the foreseeable future, a single round of funding can completely change their business trajectory. Below are five lease tips to consider if you are a start-up looking for funding or a new business with an uncertain future.
1. Commencement Date
Commencement Date language should be properly drafted to clearly protect the Tenant from various potential pitfalls. If done properly, Tenants will avoid issues like paying double rent, holding over at current space, avoid long delays in construction, and generally avoid situations where the Tenant is paying rent on space it cannot occupy.
2. Workletter/Landlord’s Work
The Workletter/Landlord’s Work needs to be precisely clear on who is responsible for what actions and costs related to the build-out. Clear timing expectations should be addressed along with definitions of Landlord and Tenant delays that include appropriate penalties applied if not adhered to. A thorough Workletter/Landlord’s Work will help tech companies move into their new space on time without any surprise capital requirements.
3. Security Deposit
Younger companies should expect hefty lease securitization, however work-arounds do exist. Tenants should attempt to achieve a cap on the amount and negotiate a “burn down” schedule at the very least.
4. Assignment & Subleasing
Having the right to assign and sublet your space is extremely important, as it provides flexibility when rapid growth/contraction occurs. Landlords will typically require 50% of any profits. As is typical, be sure that the Landlord can only deny a sub-tenant with reasonable cause.
5. Options to allow for flexibility
Tech companies should create terms specific to their unique business plan and life cycle. Rental premiums for flexible terms (e.g. early termination, expansion options) are typically worth it.
This blog was guest authored by Jeff Bodenman of Avison Young as part of a monthly series on “Tenant Tips.”