Rent Terms in Office Leases

Any analysis of a given commercial space's desirability typically begins with the fixed rent that the landlord quotes you. But this starting point must be evaluated in light of several important factors.

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. (If you are unsure about how to determine your space needs, check out How Much Office Space Does My Small Business Need?)

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 startup 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. Prepare yourself from unpleasant surprises - read The 'Gotchas' in Leases and learn to avoid provisions that could cost you a lot of money or headaches in the future.

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