From construction periods and improvement allowances to renewal options and subleasing rights, negotiating an office lease requires forward thinking and research. Thomas Allen, founding partner of Practice Real Estate Group, a full-service healthcare real-estate solutions company based in Austin, Texas, offers seven considerations for negotiating one in your favor.
1. Square Footage
Square footage of the leased space is the first consideration. “Try to come up with a plan for the business and understand how much square footage is needed, as close as possible prior to submitting a letter of intent,” says Allen.
2. The Construction Period
Second is planning for the time it takes to build out your office. “Therefore, you need to negotiate a construction period, whereby you do not pay any sort of rent until the new construction is completed,” Allen tells The Aesthetic Channel. Typically, a construction period is between 120 and 150 days.
3. Lease Length
The length of the lease is also important. “Normally, the longer the term, the more concessions you are able to secure from the landlord,” says Allen, noting that for most medical spaces the lease should be seven to ten years.
4. Rent Amount and Structure
The amount of rent and how it is structured can take several forms, including a gross lease, a triple net lease (base rent, plus taxes, insurance and common area maintenance) or a gross lease plus electricity. “Most leases in most markets are triple net leases, for which you should try to negotiate some sort of cap on how much the triple nets can increase over time,” Allen explains. “Because these expenses are variable and you have no influence over them, you want to ensure that the landlord has a motivation to control the expenses on the building.”
5. Improvement Allowance
A tenant improvement allowance is also desirable. “This is money the landlord gives you to help you build out your space,” Allen says. “Rarely will this amount cover all expenses, but you can receive a substantial sum of money, depending on your rental rate and the length of the lease.”
6. Renewal Options
Renewal options should also be included in an office lease; otherwise, the landlord can demand that the practice vacate at the end of the lease or use the lack of renewal clauses to pressure the practice to pay an exorbitant rent upon expiration.
Allen recommends two 5-year renewal options, which on a 10-year lease allows the practice to stay for a total of 20 years. “You might negotiate a fixed renewal rate at the time of the original lease, but more likely a market rate at the time of renewal,” he says. “However, if you choose the former, you may be able to negotiate a lower renewal rate at the completion of the original lease.”
Renewal rates can also be based on the consumer price index, which is set by the government for inflation.
Another negotiating tactic is to insist on exclusivity, so that the practice is the exclusive provider for a particular medical specialty within the landlord’s overall leased space.
“You also want to retain lease assignment and subleasing rights for your space, in case you want to sell the business or sublease to some other type of provider,” Allen notes.
Finally, consider hiring a real estate broker who represents medical tenants to negotiate all the above items, Allen advises.
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