Manage Your Office Lease

Staying on top of the important details of an office lease is not easy. Awareness of important lease details and critical dates is essential to effectively manage your business in general and your organization’s facility specifically. Who can remember the many details negotiated when the lease was executed years before? Most business owners and managers are focused on the core pursuits of the business on a daily basis and are all to glad to put that office lease on the shelf once completed, so they can get back to selling software, widgets, or whatever their company products sell to keep the lights on and the staff paid. I liken it to buying car insurance. When you buy a new car, the first call you make is to the car insurance company to insure the car. Once the insurance is in place, you forget about it until you buy the next car. Once the office lease is completed and the business is in its new space, business decision makers are glad to put it on the shelf to forget about it until it’s time to renew the lease or consider relocating to the next office. However, office leases couldn’t be more different. Whereas insurance simply ticks along each month without change, office leases are dynamic and undergo scheduled and unscheduled changes throughout the life of the lease.

A few aspects that cause change with commercial real estate leases are building operating expenses: who’s responsible for maintenance items and critical dates? Neglecting key details in the lease can be costly and disruptive to a business, and in some cases, can cause the business to be involved in expensive litigation to correct.

After 30+ years of representing office and industrial/warehouse tenants, I most often see issues occurring from the businesses’ inability to manage critical lease dates. Most leases contain dates that must be followed for the tenant to benefit from all of the details they negotiated before the lease was signed. As an example, if an office tenant negotiates a right renew the lease, or a right to expand or downsize at some point during the lease term, the right will almost always be contingent upon the tenant notifying the landlord in writing on a certain date. This date is called the Notice Date, which occurs months before the actual event. Lease renewals typically have a notice date anywhere from 3 to 9-months in advance of the lease expiration. If the tenant misses that date, all bets are off and the landlord now has a much better negotiating position on the lease renewal. Most business owners and managers seem to believe the landlord wanting them in the building is an automatic. Really? Are there other tenants in the building that could use your space? Are there large tenants in the building that have a back-up, right to expand into your space if you failed to exercise your right to renew? Can the landlord get more rent from your space than what was agreed to in the option to renew that lapsed? You know what they say: you don’t know, what you don’t know. For that reason, tenants need to protect their lease rights to protect their space and their ability to operate their businesses.

So how do you manage your critical dates? There are a couple ways you can stay on top of critical dates and key lease clauses in general. Here are a few:

• The simple calendar method. Plug the critical dates into your Outlook, Google Calendar, or Apple calendar. If your lease contains a sliding Commencement date, as often is the case when relocating to a new space and the completion of the space is uncertain, be sure to wait until the Commencement date is documented and then work from there in order to schedule an accurate Notice Date. I typically will fudge the date forward a bit, just to make sure it’s not missed.
• Have a 3rd party manage the lease for you. These firms, usually tenant representation brokerage firms, specialize in representing tenants and they can manage your critical lease dates as part of the service they provide. My tenant representation firm, CARMEN Commercial Real Estate Services, utilizes a lease administration application to manage all of our clients’ lease terms, especially critical lease dates. Essentially, it’s like having your own real estate department. Our application allows clients to login from our website 24/7 to get real-time information on their leases. Additionally, we provide clients with reporting they can use with their accounting and finance departments for their own tax reporting. Be aware, some firms charge a fee to provide such services. At CARMEN, we provide Lease Administration as part of our overall service.
• Once an office lease is completed, the person responsible for negotiating the lease should take a few hours to outline the important items contained in the lease, including critical lease dates, so that the pertinent details are easy to identify at a glance rather than urgently rifling through a lengthy lease document to find those details later. This is known in the commercial real estate industry as “abstracting the lease”, whereas you abstract all the critical dates and terms from the lease. Abstracting your lease will simplify what can an otherwise frustrating task of rereading a lease that can often be as many as 100 pages or more.

In summary, Tenants should take care to manage all the items negotiated in a lease document in order to benefit from those lease clauses and to prevent the business from be subjected to unnecessary cost and risk.

NOTE: when entering Notice Dates, you should have another an unofficial notice date scheduled well in advance of the official Notice Date because if you’re considering relocation, you’ll need a long lead time to evaluate the market for new space and negotiate terms for the new lease well in advance of the Notice Date to renew. That way if something goes wrong with the new space or the negotiations, you will always have the fallback to stay in the existing space, as long as you are aware of when you have to give your current landlord notice of your intent to remain in the space.