1. business and industrial
2. aerospace and defense
3. space technology

GETTING
TO LEASE
HOW TO LEASE SPACE
FOR YOUR BUSINESS
IN NEW YORK CITY
AND GET WHAT YOU WANT
M IC H A E L P I N N E Y
GETTING
TO LEASE
HOW TO LEASE SPACE
FOR YOUR BUSINESS
IN NEW YORK CITY
AND GET WHAT YOU WANT
GETTING
TO LEASE
HOW TO LEASE SPACE
FOR YOUR BUSINESS
IN NEW YORK CITY
AND GET WHAT YOU WANT
M IC H A E L P I N N E Y
Copyright © 2014 Michael Pinney
All rights reserved.
PUBLISHER
GETTING TO LEASE, LLC
EDITOR RANDY LADENHEIM-GIL
STRATEGIST
ALEXANDRE NGUYEN
BOOK DESIGN
HUY ANH LE
SA NGUYEN
PHOTOGRAPHY
JAN COBB
ISBN
978-0-9910529-2-9
WWW.GETTINGTOLEASE.COM
While the author has used his best efforts
in the preparation of this book, no representation
or warranty is made as to the completeness or
accuracy of the information contained herein.
The advice and strategies outlined may not be
suitable for your situation. You should consult
with a professional where appropriate.
01
02
03
04
05
PLANNING THE HUNT
13
HOMING IN ON THE TARGET
47
ACQUIRING THE SPACE
66
NEGOTIATING THE TERMS OF THE LEASE
135
GLOSSARY
154
06
INDEX
173
PAGE NO. 6
GETTING TO LEASE
INTRODUCTION
If you are reading this book, then you are
probably thinking about looking for a new office,
store, factory, showroom, studio, or (fill in the
blank) in New York City. Maybe you’ve thought
about what your dream office would look like.
Maybe you’ve checked out a few classified ads,
done a little research on the internet, looked up
at buildings on your way to your current office
and wondered what they’re like. You may have
thought about the time, careful planning, and
commitment of resources it will take to find the
right place.
As someone who was once a newcomer, who has
searched for space and negotiated and executed
leases as a tenant, I understand the hopes and
uncertainties that surround the process. This
book is intended to help you to see space beyond
the façade. It is a dictionary of experience that
will guide you through the process and get you
to the point where you can sign a lease that
lets you get on with your business which is the
whole point.
PAGE NO. 7
GETTING TO LEASE
INTRODUCTION
Because finding the right space is only the first
step. In order to gain control of it, you’re going to
have to negotiate with the person who controls
it now, collects rent on it, probably earns a living
from it, and has a point of view about it as unique
as your own. To help you better understand what
motivates the owners of office space, throughout
Getting to Lease I have attempted to illuminate
the landlord’s mind-set and to give a historical
perspective which might help make it more
understandable and less provocative (though
maybe no less maddening). I will help you to
manage the search effectively, to understand
the negotiating positions and the posturing, and
to wind up with the space you want and need
without losing your mind.
If you’ve never gone through the process
before, you’re probably not sure how to start.
The book will be a road map that will help you
to see what you need and to plan where you’re
going. While it is not a substitute for going
out and looking at space, it’s a good way to
jump-start your experience so you’ll have a
better idea of what you’re looking at and how
to make sense of it.
PAGE NO. 8
GETTING TO LEASE
INTRODUCTION
In Getting to Lease I won’t be saying much
about what makes a good office space; while
there may be universally appealing qualities of
light and space, none apply universally. Plus,
there are as many ways to use space as there
are spaces, and what makes one good and
one bad is entirely up to you. What I will be
offering are a lot of ideas about how to find
and acquire the right space, how to think like
a landlord, and some advice that will help you
avoid specific pitfalls.
WHO AM I AND WHY SHOULD
YOU LISTEN TO ME?
My experiences in commercial leasing began
in earnest in 1997, when I was hired by a
company as the project manager for the
construction of a 10,000-foot office space in
midtown Manhattan. I had a background in
construction, as well as diverse experience in
computer technology, finance, sales, human
resources, and running my own small business.
All of that experience stood me in good stead
when navigating the vagaries of the real estate
business and the sometimes outrageous
characters I came into contact with in the
industry in New York City.
PAGE NO. 9
GETTING TO LEASE
INTRODUCTION
Besides dealing with belligerent contractors, as
a construction project manager, I also had to
manage the relationship between the decision
makers of the company, the architect, and the
building manager; negotiating the intersection
of expectations on such issues as cost,
scheduling, and aesthetics was a challenge, as
you can imagine.
Dealing with contractors was easy, though, in
comparison with the landlords, brokers, and
managers I dealt with in my next job as the
facilities director of an Internet company during
the first dot-com boom. While I worked for that
company we acquired new space in New York,
London, and Los Angeles at a time when
commercial real estate rents were skyrocketing.
My job was to find space, build offices, and then
try to keep the whole house of cards under some
kind of fiscal control.
The customs and language of real estate in
each of those cities are quite different from
one another, but after some time, I learned to
navigate them while learning a lot of useful
lessons along the way.
After a couple of years, the Internet company
imploded and soon after that I realized that
PAGE NO. 10
GETTING TO LEASE
INTRODUCTION
the sum of my experiences and my insight into
the many different forces that impact a
company’s physical needs could be put to
good use as a broker. By bringing my unique,
empathetic understanding of the various and
sometimes competing needs of the interested
parties and an experienced understanding of
each discipline, I could be effective in bringing
about a meeting of the minds. So that’s what I did.
I have taken it as my mission to give people a
better experience when acquiring space. Over
the past sixteen years I have helped hundreds
of companies in many different industries find
space for their businesses. A good portion of
my time is spent educating people who are
looking for space, guiding them past their fears
and preconceived notions, and generally helping
them to better understand the relationship
between the space, the landlord, and the tenant.
It’s a lot like being a guide for people who
have come to a vaguely familiar but ultimately
foreign country.
After all, how many commercial leases are you
going to sign in your lifetime? If you’re an average
small business owner, such as the founder of a
technology company, a fashion importer, or a
law or PR firm, maybe you’ll search for new
PAGE NO. 11
GETTING TO LEASE
INTRODUCTION
space three to five times. If you are a serial
entrepreneur, the sky’s the limit; you could sign
a new lease every two years for your entire
career. Or you may be an operations or office
manager or even an executive assistant with
no experience in commercial real estate at all
whose boss came to you last Friday and said,
“WE NEED TO FIND A NEW OFFICE. GO LOOK AT SOME SPACES,
NARROW DOWN THE CHOICES TO THE BEST THREE OR FOUR,
AND I’LL MAKE A DECISION AT THAT POINT.”
WHERE DO
YOU BEGIN?
This book will be your guide. If you’ve never
done it, walking into a raw space and envisioning
your future there is a unique experience for
which no discussion can completely prepare you.
Once you’ve seen several spaces, you’ll start
to hear the same subjects repeated again and
again, and you’ll begin to be able to trust your
own impressions. Once you’ve signed several
leases, you’ll have a general map of the terrain
in your head.
For the moment, don’t worry about the lease
or the worrisome terms in it. I’ll go over the
main points in detail later. And although I
have a lot of experience in this area, I strongly
recommend having a lawyer with experience
in commercial leases review it and refine the
PAGE NO. 12
GETTING TO LEASE
INTRODUCTION
language so that it isn’t weighted too much
in favor of the landlord (which it will be in the
beginning). If you want, you can read one of the
many fine books written by real estate lawyers
that will help interpret the language of commercial
leases. But even that is not a substitute for
expert legal advice.
Whether you’ve done this before or this is your
first time, Getting to Lease will get you to the point
where you can be confident that you can sign
the lease you have in hand because you know
the space is workable and is the one you want.
Finally, throughout the book, I’ve included
references to the website. In the "Resources"
section you will find an appendix that elaborates
on some concepts that are related to the themes
mentioned here, but are not necessarily
concerned directly with a search for space.
There is also a glossary in the back of the book
and on the website with a list of relevant real
estate terms that you may need to know. I tried
to define the most important ones in context,
but if there are any you still don’t understand,
look them up.
PAGE NO. 13
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
1.0 THE SEARCH 2.0 WHAT TO LOOK FOR?
3.0 TIMING
_PLANNING BACKWARDS
_STARTING BEFORE YOU'RE PLANNING TO MOVE
_STARTING TOO LATE
_THE RULES
4.0 WHERE TO LOOK?
_MICRO NEIGHBORHOOD GUIDE
5.0 BEGINNING THE SEARCH 6.0 YOUR ATTENTION
0 NO MATTER WHAT
_USING THE BROKER
7.0 SETTING YOUR
0 EXPECTATIONS
_THE CEO
_THE SCOUT _THE COMMITTEE
PAGE NO. 14
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SECT. 1 PLANNING THE HUNT
1. THE SEARCH
There are a lot of ways to go about finding
space. The best, most reliable way is to hire a
broker. I’m a broker, but even if I weren’t, I would
believe that using a trustworthy broker will
yield the best results 98 percent of the time.
About 2 percent of potential tenants will find
the space they’re looking for because their
friend’s girlfriend’s roommate’s business is
moving to Boulder and nobody else knows yet
that they’ll be subletting their space in a few
months. For those lucky few, there is nothing to
do except sign the sublease and get to work. That
does happen, but so do rainbows, and they’re not
something you can build a business on.
We’ll get to the actual looking in a little while,
but let’s take first things first. Before you start
looking for your space, it helps to know a few
other things.
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GETTING TO LEASE
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2. WHAT TO LOOK FOR?
The first step is to identify your actual needs.
Those needs might be obvious because
somebody else has told you what to look for and
you have been given the job of identifying good
prospects. Or it may be that you have outgrown
your current space and need more of the same
type, or you may be shrinking and need less, or
the space you have now may be perfect but the
rent is going up or the building is going to be torn
down, or it could be that you want an office just
like that of a company you admire.
Whatever the reason for wanting to look, the
first question is: How much space do you need?
The best rule of thumb is to count the number
of employees now and in the foreseeable future
and multiply by 150 to 200 square feet.1 That’s
a good ballpark figure. Like any guideline, this
number is extremely fungible. I have worked with
companies that allotted less than 100 square feet
per person, and there are law firms that wouldn’t
consider having less than 400 square feet per
person. Not that every person in the company
needs so much personal space. All offices also
have public spaces that have to be taken into
account, like the reception area, conference
rooms, the kitchen, storage space, and hallways.
The different types, uses, and amounts of space
within a given office is called programming, and
1
THROUGHOUT GETTING TO LEASE, WHEN I REFER TO SQUARE FEET, IN ALMOST ALL CASES I MEAN
RENTABLE SQUARE FEET. THERE IS A DIFFERENCE BETWEEN RENTABLE AND USABLE SQUARE FEET
WHICH IS DISCUSSED IN DETAIL LATER.
PAGE NO. 16
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
we’ll get into that in more detail in a later chapter
(see page 68), but determining these different
needs is essential in setting a target.
FACTORS THAT AFFECT THE SIZE OF
YOUR REQUIREMENT:
»»A certain number of offices for executives with workstations
for assistants
»»A conference room that will fit a certain number of people
»»Training rooms
»»A shipping and receiving area
»»A recreation space
»»A place where everybody in the company can gather all at once
»»A library
»»Extra server equipment
»»Extra meeting rooms and informal meeting areas
»»A file room
The possibilities are endless. I once worked with
a psychiatrist who ran what were essentially
hotels that rented space to other psychiatrists.
He knew exactly how much revenue each office
could generate and cared only about the ratio of
windowed offices to circulation space. The total
size of the place didn’t matter to him at all.
If your company is in a growth phase, no one can
provide you with a crystal ball to let you know how
much space to allow for that growth. Even though
you may have a detailed business plan that lays
PAGE NO. 17
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
out a clear trajectory for your company, or have
ambitions tucked away in the back of your mind,
you know you can never be sure of exactly what’s
going to happen in the future. It’s a leap of faith
to take space that you can only imagine needing,
that you hope you will need. My advice would be
this: consider however much you are 100 percent
confident in needing for the next three years plus
however much more your current income can
support. But even as I say that, I can immediately
think of a dozen arguments for making a different
decision, such as—take as much space as you can
comfortably afford if your business contracts by
twenty-five percent or you will fit in for five years if
your company grows by fifty percent.
Growth is a double-edged sword. On the one
hand, it’s a good problem to have, and if you are
outgrowing your current space, you probably have
the revenue to afford something larger. But in that
case you might have to sublet your current space
in order to live up to the terms of that lease. Or
you might consider a second space on another
floor or in another building, in which case you
would have to split the company. There is pain
of different sorts in any of these choices,
the analysis is which one is the least painful.
If you’re still unsure, talk to people: your
PAGE NO. 18
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
accountant (who will probably advise you to take
much less space), your lawyer (who will probably
advise you to stay where you are), or to other
business owners (who will probably advise you
to do whatever they did, but who may tell you
about mistakes they made that they—and you—
can learn from). Eventually, your gut will tell you
how much space to get.
THE
RULES
When searching for space, some people find
it useful to create a list of about four (or six or
eight) attributes that every space must have or
it can be eliminated immediately.
THOSE FOUR RULES MIGHT BE:
»»The right neighborhood
»»The overall size
»»Tenant-controlled air conditioning
(as opposed to building-controlled)
»»Completely open space except for one large conference room
OR THE FOUR THINGS MIGHT BE:
»»Overall size
»»The right number of offices already built
»»A pantry
»»An attended lobby.
The exact number of rules doesn’t really matter,
but there should be few enough to be kept in
PAGE NO. 19
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SECT. 1 PLANNING THE HUNT
DOES YOUR BUSINESS HAVE ANY SPECIFIC TECHNICAL
REQUIREMENTS?
»»A battery backup system to keep your computer system
online 24/7/365?
»»A certain amount of power available because of some
specialized equipment?
»»Access to the freight elevator at all hours of the day and night?
mind when the initial spaces are being evaluated.
All of these things are possible; you just need
to know the touch points that will include or
exclude a building for you.
My experience with businesses has shown me
that these things are rarely all defined perfectly
from the beginning. Sometimes they don’t
surface until well after the search is underway,
often not until attention is starting to get focused
on one particular space and people start to
really think through all the details. Suddenly a
great space will start to look untenable. There
isn’t very much you can do to prepare yourself
for this; it’s just the way things go. The process
teaches flexibility if nothing else.
PAGE NO. 20
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SECT. 1 PLANNING THE HUNT
3. TIMING
PLANNING
BACKWARD
The timing of a move is never going to be perfect;
it can only be optimized. What is the latest date
you can imagine moving in to your new office?
Start there and work backward. Since you’re
reading this book you’re already thinking about
moving, so the timing of your search is already
a factor. In order to decide when to move, you
have to examine the forces at work that initiated
the desire to move and factor in the logistics
involved in the move itself.
SO WORK BACKWARD:
1.When do I need to be in the new space?
2.When does my current lease expire, and how much overlap is optimal?
3.How long will it take to find the right space?
4.How long will it take to negotiate with the landlord?
5.How long will it take to get the space ready?
A business that requires less than 2,000 square
feet or has fewer than five employees can
probably do without a lot of paper planning
without any problem.
But as businesses get larger the complexity
increases geometrically, and the move will need
a lot of attention in order to plan and execute it.
My experience has shown that moves are best
organized when one person is the central point
PAGE NO. 21
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
of contact for all things related to the move rather
than dividing areas of responsibility among a
group. It would be best if that person has the
ability and authority to delegate responsibility,
with everything flowing back to him or her.
STARTING
EARLY
It’s perfectly fine to go out and start to educate
yourself about the market by looking at space,
even if you’re not really ready to make the move
yet or if the possible move date is far out in the
future. I have had the experience, though, of
working with tenants who believed they could
break their current lease when, in reality, they
couldn’t. If that’s your situation, be realistic with
yourself about it. Most landlords won’t allow it.
Even if you think a landlord ought to think it’s
a good idea because the market is strong and
you’re paying less than market rent, they may
or may not for a number of reasons. Have your
broker talk to your landlord and find out whether
or not he will allow it.
Remember too that in a weak market, a tenant
may be able to finesse the move-in date and free
rent2 to their advantage. But in a strong market,
landlords will try to force you to sign a lease
today and start paying rent tomorrow.
2
FREE RENT IS DEFINED FURTHER IN SECTION 3, BUT BRIEFLY IT IS A PERIOD OF TIME THAT A TENANT
POSSESSES A SPACE BUT IS NOT REQUIRED TO PAY RENT.
PAGE NO. 22
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
If you’re a small or medium-sized business and
you’re starting to look more than six months
before your optimal move-in date, it should be
with the understanding that even if you like the
first thing you see but you’re not willing or able to
act on it, you may have to let it go. For a landlord
the risk calculation is quite simply “is this bird in
the hand really better than the one that might
be in the bush?” His point of view is going to be
based on his experience with this issue in the
past and his view of the current market, which
can also be described as his appetite for risk. If
a landlord knows you don’t want to move in for
six months and thinks he can start collecting rent
sooner from someone else, he will go with that
other tenant. If there is some factor that makes
you more attractive than average (e.g., you’ve
been in business for a long time, have a lot of
cash in the bank, or are offering a very attractive
rent figure), he might decide it’s better to wait
for you and accept the time that the space sits
fallow as a part of his overall expense. Don’t
forget that free rent is always seen as a dealmaking expense by the landlord and is money
out of his pocket.
STARTING
LATE
Starting too close to your deadline to move
adds a lot of additional pressures. While I don’t
PAGE NO. 23
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
recommend it as a form of thrill-seeking—there
are better ways to raise your heart rate—just
because you’re late doesn’t mean you won’t find
a perfectly suitable new space.
But being short on time definitely puts you
at a negotiating disadvantage. In general, it
requires more willingness to make concessions
on all manner of choices and it narrows your
maneuvering room. The initial search may turn
up one or two promising spaces. If you only
have 21 days until you must move, one of those
spaces is going to have to be your choice. In that
case, though, if the landlord has some onerous
provision in his lease that in other circumstances
might kill the deal for you, you may have to suck
it up and accept that provision rather than walk
away. Being late also demands that the condition
of the space fit your requirements more readily.
The landlord may not be willing to do a rush job,
or he may not be able to accommodate your
schedule to make changes for any number of
logistical reasons.
If a lease expiration is what’s driving your move,
you might be able to stay in your current space a
little longer. First make sure you know the exact
date on which the lease expires. It’s very common
to misremember a date that was decided on
PAGE NO. 24
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
years before. You should also examine your lease
and make sure you understand the holdover
provision. Most leases stipulate that if you stay
beyond the end of a lease, you are “holding over”
and will be required to pay a penalty for doing
so. That penalty is usually that the monthly rent
increases to about 1½ to 3 times the current rent.
Once you’re sure you might bump up against the
expiration of your lease, have your broker open
a dialogue with your current landlord. A lot of
landlords won’t enforce the holdover provision
as long as they’re given sufficient notice of your
intention to hold over, and as long as they aren’t
going to be damaged in some way by your doing
so. Many times, they’ll be glad to have the space
occupied longer to give them more time to find a
new tenant.
A search is a perishable item; it has a time
frame and once time goes by, the time cannot
be regained. One day you’ll be thinking that you
have all the time in the world and then suddenly,
before you realize it, you might find that time is
running out. This can happen for many reasons.
Sometimes the forces that impact a move can’t
be controlled, and so be it. You have to play the
hand you’re dealt. As I said, no timing is going
to be perfect; it can only be optimized. Four to
six months is generally the right amount of time
PAGE NO. 25
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
to allow for an average search. Four months is
just about the minimum for an average search
for a small company that requires a few offices,
open space, a conference room, a pantry, and a
reception area. The larger and more complex the
requirements, the more time should be allotted.
Nine months is the minimum amount of time
when you need 20,000 feet or you have a lot of
special technical needs.
4. WHERE TO LOOK?
As with the uses of space, the reasons for
choosing one area over another are entirely
subjective. You know where you feel most
comfortable.
WHAT’S MOST IMPORTANT TO YOU?
»»Restaurants for client entertaining?
»»Safety at night?
»»Easy transportation?
»»Proximity to others in your industry or your customers?
»»Something that helps retain employees in your industry?
»»Allegiance to a neighborhood?
»»Cost?
Below is a chart showing the major commercial
office districts in Manhattan. Keep in mind that
this is not about retail space, which is a whole
different ball game.
PAGE NO. 26
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
NEIGHBORHOOD
2013 PRICE RANGE,
$ PER SF PER YEAR
BOUNDARY
EAST/WEST
BOUNDARY
SOUTH/NORTH
VIBE
Gramercy Park
$40 to $60
3rd Ave. to
5th Ave.
19th St. to
24th St..
Hip, Laid-back
Union Square
$45 to $70
3rd Ave. to
5th Ave.
11th St. to
18th St.
Ultrahip
Murray Hill
$40 to $55
3rd Ave. to
5th Ave.
25th St. to
39th St.
Down-to-earth,
work-a-day
Grand Central
$50 to $90
2nd Ave. to
5th Ave.
40th St. to
50th St.
Commuter driven
Plaza District
$60 to $105
2nd Ave. to
5th Ave.
51st St. to
60th St.
Exclusive,
expensive
Flatiron District
$45 to $70
5th Ave. to
6th Ave.
14th St. to
24th St.
Ultrahip
Lower Chelsea
$40 to $55
6th Ave. to
8th Ave.
14th St. to
23rd St.
Hip on a budget
Upper Chelsea
$35 to $55
5th Ave. to
9th Ave.
23rd St. to
29th St.
Less hip, on a
budget
Chelsea Gallery
Dist.
$45 to $80
9th Ave. to West
Side Highway
17th St to
29th St.
Cool, but far from
transportation
Meat Packing
Dist.
$50 to $100
9th Ave. to
11th Ave.
Little West 12th
St. to 16th St.
Ultrahip,
expensive
Garment District
$35 to $55
5th Ave. to 6th
Ave. (includes
Broadway)
30th St. to
40th St.
Nice buildings,
good value
Penn Stn/
Garment
$30 to $45
6th Ave. to
9th Ave.
30th St. to
40th St.
Best value, but
very workmanlike
Hudson Yards
$45 to $70
9th Ave to West
Side Highway
30th St. to
40th St.
Good potential
when completed
Times Square
$45 to $75
5th Ave. to
8th Ave.
41st St. to
50th St.
Crowded,
convenient
Hell’s Kitchen
(Clinton)
$40 to $65
8th Ave. to West
Side Highway
40th St. to
59th St.
Trendy, midpriced
Columbus Circle
$45 to $115
5th Ave. to
8th Ave.
51st St. to
63rd St.
Exclusive,
expensive
SoHo
$55 to $80
3rd Ave. to 6th
Ave.
Houston St. to
Canal St.
Crowded, trendy,
convenient
Hudson Square
$45 to $65
6th Ave to
West Side
Highway
Houston St. to
Canal St.
Big lofty spaces
Tribeca
$45 to $75
Broadway to West
Side Highway
Canal St. to
Chambers St.
Trendy, expensive
City Hall
$35 to $45
Chambers St. to
Fulton St.
Pearl St. to
West St.
Good value, drab
Insurance District
$30 to $45
Fulton St. to Wall
St.
Pearl St. to
West St.
Good value, drab
Wall St./Financial
District
$30 to $80
Wall St. and below
River to River
Veers from drab to
outrageously nice
PAGE NO. 27
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
Generally speaking, anything on an avenue
will command a price at the higher end of the
spectrum. Anything directly facing certain
parks—Union Square, Bryant Park, and Madison
Square Park are a few examples—will probably
get a 10- to 15-percent premium over the
average rent for the area. Penn Station/Garment
District and the Financial District have given
the best value for the dollar consistently
throughout my career, though at the expense
of having the lowest cool factor. The Plaza
District has the highest percentage of Class A
buildings (see the sidebar) and is therefore the
most expensive and exclusive. At the height of
the market, in 2007, rents there reached as high
as $140 per square foot.
BUILDING CLASSES
Building classifications are one of those ideas that have a different
meaning in every individual’s mind. In a way, it’s a useful means to rank
buildings in comparison with other buildings. In another way, it’s simply
a marketing tool that owners use to set their building apart from others.
A Class A building should be a full service building. It will have numerous
passenger elevators to minimize waiting time and marble bathrooms
that are spotless. Building staff will take care of any and all maintenance
issues within the space like leaky sinks, electrical shorts, burned-out
light bulbs, cleaning, etc. They also tend to be clustered near major
transportation hubs like Grand Central and Wall Street, where financial
services firms tend to be. Some iconic Class A buildings are the GM
Building, the Lipstick Building, and the World Financial Center.
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But even within the A classification, there are A minus buildings that are
not quite the same standard or that might have been upgraded from a
Class B building; the lobby might not have the same soaring ceiling, the
building staff might not be as attentive, the hallways might not be quite
as elegant.
Class B buildings emulate all of the above to some degree but have less
of it. They usually have 24/7 door guards, but no concierge service.
The lobbies and elevators are usually nice but not ultrasleek. Common
areas range from nice to just okay. Cleaning is sometimes included and
sometimes not. Maintenance within the space is usually the tenant’s
responsibility.
Class C buildings include everything else. Any multistory building with
less than 100,000 square feet is probably a Class C building because it
can’t generate enough income for the landlord to offer better service.
The quality of these buildings varies immensely, and they employ
every imaginable scheme for security, maintenance, and services. The
buildings might be former factories, garment manufacturing buildings,
old department stores, converted dairies, bakeries, or rendering plants;
some are quite eccentric and some are quite nice.
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5. BEGINNING THE SEARCH
USING THE
BROKER
Once you know what you’re looking for in broad
strokes, you’re ready to begin the search. Your
next task is identifying potential spaces. Should
you use a broker? As I said in the beginning of
the chapter, I’m a broker, and I think you should
just get in touch with me (www.gettingtolease.
com). That’s bald self-promotion, yes, but even
so, I think it’s true.
There are a lot of resources on the internet these
days and I understand the temptation to believe
that a human broker is obsolete, that you can do
it all from your desktop. But the fact is I’m not
obsolete. By virtue of the fact that you’re reading
this book, I’m guessing you want help with the
process, so the question is simply how much.
HOW MUCH IS YOUR TIME WORTH?
»»I’ll run a well-organized, methodical search that will yield an excellent office that can sustain you for whatever period of time you want and
for whatever purpose you need.
»»I’ll help you think about things you might not have otherwise. That’s
the benefit of my experience as a tenant looking for space.
»»I’ll analyze the financial aspects of multiple potential deals and present them to you in an apples-to-apples comparison. That’s the benefit of my financial and analytical background.
»»I’ll help you determine whether a given space has all the technical attributes you need; that’s the benefit of my construction experience.
»»I know how to negotiate terms with a landlord, what to ask for, when to push, and when to fall back. That’s the benefit of my experience
as an agent.
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You should expect no less from any broker.
What I can’t do is make you trust me if you’re
inclined to think that I’m a back-stabbing,
double-dealing bloodsucker. If you think that, I
can’t help you, but you’re also not alone. I talk
to people all the time who think that way. I know
it’s partly because there are a lot of commercial
real estate brokers, and some of them behave
like I’ve just described. It’s true that as a group
we’re competing for scarce resources, often by
calling you out of the blue and trying to pressure
you to look at space or tell us when your lease
expires or generally being annoying. We tend
to be pushy, overtly and sometimes comically
ingratiating and…well, baldly self-promoting.
I understand all of that. But I still think you
should call me.
If you must call someone else, get a
recommendation from friend or another
business owner you know and trust. There are
valid reasons not to go it alone. For one thing,
while you might negotiate for a new office lease
five times in your career, Landlords might do
it five times a month which immediately puts
you at a disadvantage. In New York commercial
leasing, unlike residential leasing, the landlord
pays the tenant’s broker, so there’s no economic
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GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
disincentive. The market is extremely variegated
and chaotic, and an experienced person acting
as an advisor should be nothing less than
welcome, if for no other reason than to act as
a curator of the vast amount of information you
will encounter.
There’s also a temptation to simply call a bunch
of different brokers. Often, people from out of
town tell me with absolute certainty that “the
best deals never make it to the market” and ask
me to use my contacts to get them something
that’s off-market. It’s true that the building
sales market is that way. The very best deals in
building sales in Manhattan rarely get publicly
disseminated before some insider/ developer/
golf buddy offers to buy it first.
But with rentals, the worst that can be said is that
it sometimes takes a couple of “extra” weeks
before something gets listed. And in that case,
there’s only one broker or one firm that knows
about it, and if you don’t happen to call that
particular broker or firm at exactly the right time,
you’re not going to have access to it. Most active
brokers in New York City subscribe to a database
called CoStar.3 It’s very expensive, but about 98
percent of all space gets listed there. Unless
one of the three or four brokers you happen to
3
COSTAR IS THE SOURCE FOR MOST OF THE STATISTICS USED IN THIS BOOK.
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GETTING TO LEASE
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call (I defy anybody to use more brokers than
that) has something perfect for you in his or her
pocket, the chances of a phone call leading to a
successful lease of an off-market space are no
better than those on a roulette wheel. The fact is
that the New York commercial real estate market
is gargantuan (according to Costar, there is more
than half a billion square feet of commercial
space in Manhattan alone) and there is simply
too much space available not to list it publicly
even in a tight market.
Many brokers will require you to work with
them exclusively and to sign an agreement to
that effect. But should you sign up with one
broker? Again, it all boils down to trust and to
your thoughts regarding how much your time is
worth. Companies that are accustomed to signing
contracts for labor will generally have little trouble
signing an exclusive with a single broker. Larger
companies with a well-formed bureaucracy and
a large, diverse workforce will also have little
trouble signing an exclusive arrangement and see
it as a simple division of labor. An entrepreneur
who has built a company from scratch and is the
driving force behind a company’s growth will
generally believe he or she would be ceding too
much control via an exclusive agreement and
won’t do it.
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Personally, I rarely work without an exclusive.
There are circumstances where I won’t require
one, certainly, and my decision to do so is always
made on a case-by-case basis. Most larger firms
will never allow their agents to work without
one. In those few cases where I don’t have one,
as long as we’re agreed that you’ll work with me
solely until you’re satisfied I’m not getting the job
done for you, I won’t force the issue. But I never
knowingly get involved in a scrum with other
brokers. If I know you’re seeing space with other
brokers, I may only show you space I control
directly, which will take just a couple of hours of my
time, but which, as I’ve said, the law of averages
states probably won’t lead to a successful result.
Without putting too fine a point on it, all of the
most effective brokers work this way.
If, for whatever reason, you want to do it
yourself, this too can be done. I found the
following description in a post by Joel Spolsky,
a tech blogger who at one time wrote a lot
about creating office environments friendly to
programmers. In this post, from 2003, it’s clear
his opinion of brokers is pretty low, though he
has changed his mind as the years passed and in
later posts has spoken highly of the broker who
eventually found space for his company.
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GETTING TO LEASE
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“FIRST, DO SEARCHES ON TWO WEBSITES, WHICH OVERLAP
SOME BUT NOT ENTIRELY IN THEIR LISTINGS: CITYFEET
AND MROFFICESPACE. 4
IF YOU WANT CHEAPER, ARTSY SPACE, CHECK THE VILLAGE VOICE."5
"Avoid two things: ads that sound like
executive office spaces, and ads that
are just pitches for brokers disguised
as listings. You can identify these
because they don’t give any details
about the space, like the address. If the
address is not in the listing, don’t bother
responding, it’s almost certainly a broker
who is fishing for potential tenants.
He’ll tell you to meet him at Starbucks
at 10:00 am where he’ll show up with
exactly the same list you printed out
from MrOfficeSpace.
like the building. Check out the lobby.
Read the list of tenants to see if they’re
mostly software companies, architects,
and graphic designers, or if they’re
mostly clothing factories, importers,
and methadone clinics. Check out the
neighborhood.
Like the building? Here's the next step,
for which you should be reasonably well
dressed. Go into the building's service
entrance and ask to speak to the super.
Tell the super you're looking for office
space and you want to see the space
Next step: do not call the broker in the in his building. He will show it to you...
listing. Yes, they can show you the space, That's all there is to it.
but you don’t need them yet. First go to
the building in the listing and see if you Now, if you like the space, call the broker."
"'What would have happened,' you may ask, 'if I had just called the number in the
ad?' Well, nothing terrible. The broker would have met you in the building lobby,
and then he would have asked to see the super, and the super would have shown
you the space. You see, the super has the keys and knows how to drive that cool
manual elevator that goes to the floors where the fancy automatic elevators don't
stop because there are no tenants there."6 — Joel Spolsky
From this post you get a reasonably good idea of how to go about
looking for space without a broker. The question is, again, how much
is your time worth? I won’t beat this horse anymore, but, to my mind,
the answer is—call me.
4
NOTE: MROFFICESPACE IS STILL IN BUSINESS, BUT LOOPNET AND PROPERTY SHARK HAVE OVERTAKEN IT AS MORE EFFECTIVE TOOLS. CR AIGSLIST WORKS, TOO, BUT IS HIT OR MISS BECAUSE THERE ARE SO MANY DUBIOUS LISTINGS.
5 AS OF 2013, THE VILLAGE VOICE IS NO LONGER EFFECTIVE. FOR SMALL SPACE, USE CR AIGSLIST, WHICH DOES WORK WELL FOR THIS PURPOSE, IT JUST TAKES SOME DIGGING.
6 HTTP://NEW.JOELONSOFTWARE.COM/ARTICLES/OFFICENEW YORK.HTML
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6. YOUR ATTENTION
NO MATTER WHAT
A real estate broker can only do so much to
keep the search on the right track; even with a
good, experienced broker guiding your search,
somebody from your organization is going
to need to be 100- percent responsible for
organizing the search internally. There will be
a lot of information coming in and somebody’s
going to have to keep track of it and manage the
flow up and down the organizational chart and
out to other consultants and service providers
like architects, furniture planners, and IT
consultants.
THE CEO
By its very nature, the space hunt requires
a lot of subtle decisions, not all of which are
easy to communicate. But they still have to be
communicated. If you are the ultimate decision
maker and have taken the lead on the search,
you can make course-changing decisions on the
fly. The hunt will almost always require some
compromises only you can make. It’s your vision
that’s ultimately being brought to life and, along
with the raw data analysis, the decisions involve
spatial awareness and emotional connections
that may be hard to communicate to an
employee. I can’t tell you how many times I’ve
heard the phrases, “I’m not feeling it here,” and
“I’ll know it when I see it.” So go out, see some
space, and feel it.
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THE SCOUT
If you’re the office manager or an executive
assistant, you’re going to be acting as the scout
and reporting information back to the decision
makers. Here’s where determining the Rules
(see page 21) becomes imperative. If you can,
try to get the decision maker to express the most
important attributes and keep them in mind
when looking at space. But don’t get complacent
about them; keep going back and pressing the
decision maker to see if there are possible
exceptions or any new information. I’ve often
had the experience where a busy executive has
expressed a strong desire to the person who has
been delegated to do the search and then, when
speaking to me, expressed something much
more flexible, which can make you feel like you’re
standing on constantly shifting ground.
It can be frustrating, but just know that it’s very
common. Changing course several times is
the rule rather than the exception in a process
like this, which is another good reason to leave
yourself plenty of time.
Whoever is the point person should have
the most up-to-date information about the
company’s requirements and should be able to
understand how each space under consideration
fits into the current thinking.
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I once had the experience where a scout thought
he had identified a good candidate space that he
wanted the busy CEO to come out to see. We
had to jump through a lot of hoops to find time in
the CEO’s schedule, but we had high hopes that
the search could be concluded after this meeting.
The CEO spent about a minute walking through
the space, then turned on his heel and walked
out. Outside he dressed us down for wasting his
time on a space that was about half the size it
needed to be. The scout and I were both stunned
because it was in the middle of the size range
we had been tasked to find. As it turned out, the
company’s latest projections predicted it would
be doubling in size in the next year, so the new
space needed to be a lot bigger, but nobody had
told the scout. We came to find out that this
projection had been known for some time and
the scout had spent at least a month touring and
cataloging data on unsuitable spaces. Now the
entire search had to be recalibrated with this new
information.
Aside from being just aggravating, this lack of
simple communication cost a month of time,
which, in a fast-paced market like New York,
could have been decisive in acquiring or losing a
good space for the company.
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So keep the information flowing up and down the
line. Ideally, the scout will have a direct pipeline
either to the decision maker or the decision
maker’s trusted advisor. Avoid a situation in
which the scout is made to feel like he or she
is taking up too much of the decision maker’s
time by reporting the findings regularly. At the
very least, there should be someone who has the
decision maker’s ear and to whom the scout can
speak freely.
THE
COMMITTEE
Avoid the temptation to create a search
committee unless it has the power to actually
make decisions. Even within an organization
that appears very like-minded, there will be
differing opinions about what constitutes good
space and what doesn’t, and a committee can
get mired in details that may not be important
to the decision maker.
I’ve had the experience where a requirement was
poorly defined by a committee and not consistent
with the wishes of the decision maker. The
committee approved the terms of an offer, but,
as it turned out, while the CEO liked the space,
he didn’t like some of the terms regarding timing
and build-out the committee had approved, so
the offer had to be changed. I wish I had known
sooner that this was the dynamic at work
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SECT. 1 PLANNING THE HUNT
because I could have counteracted it. As it was,
the landlord accommodated that first change,
but as new information and requirements kept
coming from the committee, the landlord became
mistrustful and started to think that the changes
would never stop. Eventually the mistrust grew
toxic on both sides and the deal fell apart.
A group of people may be good at deciding
the details of laying out the space, but more
often than not they will muddy the waters in a
negotiation.
Define your needs as clearly as possible with
the information you have now. The first offer
to a landlord is a powerful moment. A new
relationship is being formed. Even though the
details are memorialized in a lease, what you’re
entering into is really a relationship between
people. Every communication is important to
forging that relationship, and you should strive
not to appear capricious.
While consistency is your ally in negotiations,
I’ve rarely had the experience where an
opening stance was perfectly consistent. Minds
change and new information leads to different
requirements. So start with what you can control,
which is your knowledge of what you want at that
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GETTING TO LEASE
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moment. Then, when new information requires
you to request a change in terms, you won’t have
used up your goodwill and created an impression
of chaos that could kill an otherwise viable deal.
7. SETTING YOUR EXPECTATIONS
To make a generalization, it’s no longer automatic
to assume that if the broader economy is faltering,
the real estate market in New York will swing
down dramatically as well. During the “Great
Recession,” from 2008 to 2010, office space got
cheaper, but not cheaper than it was in 2005.
Just to give you a little history, after 9/11 the
market crumbled and New York experienced
a wave of bankruptcies leading to a dramatic
rise in vacancies. This was followed by two or
three years of robust but rational growth. Prices
started to inflate in 2006 and continued to inflate
all through 2007. That period saw the fastest
run-up in prices in anybody's memory. There
were people who had been in the business for
30 years who had not seen anything like it,
and everybody wondered where it would stop.
Prices hit their high point in January 2008 and
started an inexorable slide which didn’t stop until
January, 2010.7
7
CoStar
PAGE NO. 41
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SECT. 1 PLANNING THE HUNT
But the interesting thing was that prices never fell
as much as most tenants had hoped. Everyone
heard stories about the spectacular bankruptcies
of some high-profile property owners, and many
hoped all space would soon be had for a song.
Prices did drop an average of 33 percent8 which
sounds great until you understand that in the
run-up that preceded it, prices had risen an
average of 40 percent so all the loss didn’t equal
the gains made during the bubble. Why? Some
of it can be chalked up to inflation, but also, in the
wake of the Great Recession, there was no swift
landslide of companies going broke and creating
a glut of empty space. Because there were still
plenty of companies in New York City with
robust cash reserves who were able to keep the
market buoyant, the number of available spaces
rose slowly and steadily rather than in a torrent,
as in 2002.
Average rents did fall during this time, and
landlords did offer more concessions. Rents
of $140 per square foot fell by more than half.
Class B and C buildings in some neighborhoods
cut their rents much less, though. And in some
particularly fashionable neighborhoods, prices
hardly fell at all, and then only for a short period
of time.
8
CoStar
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GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
MY PERSONAL VIEW IS THAT NEW YORK HAS
REACHED A TIPPING POINT WITH SEVERAL
DISTINCTIVE FEATURES:
»»Typically, as industries evolved and left behind empty space,
there were opportunities to find cheap space; artists, for instance,
moving into unused warehouse space. Then other pioneering businesses would move in to take advantage of the low prices too.
Eventually the area would become more and more popular and the prices would go up, driving out the early pioneers but leaving a
more desirable neighborhood. Now the majority of that conversion is complete in Manhattan.
»»All new construction in New York is one of four types:
Residential condominiums
Hotels
Retail
Class A office space
»»With no new construction of Class B office space and no new
conversions of Class C space the market for that space will
stay supported.
»»The improved quality of life that began in the 1990’s led to immense population growth which in turn led to a resurgence
of economic activity has continued to draw capital and customers from all over the world. As long as that’s the case, the market
here will stay strong.
Two other factors played a part in supporting
prices during the recession as well. First, despite
the broader reasons for the crisis, there were
many New York City landlords who hadn’t
succumbed to the lure of cheap credit and so
entered the crisis with good cash reserves, low
debt ratios, and enough wisely chosen, rentpaying tenants to keep them afloat without
making fire-sale deals.
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Another component that kept space from
getting cheaper was the fact that loss factors—
the difference between how much space a
tenant can use and the size the landlord calls a
space for marketing purposes—rose as well as
rents. In 2009, the 33-percent average drop in
price wiped out much of the dollar cost inflation
of the previous two years, but the increase in
loss factor is like a lingering hangover that isn’t
likely to go away.
My advice to tenants is to always use the
advertised size and price as a starting point.
Figure out if the space is the right size for what
you intend to do with it and proceed from
there. If you’re signing a long- term lease, hire
a space planner or architect to make sure your
business fits into the usable space. They’ll be
able to help define the “program” or list of your
requirements and then perhaps do a test fit of
all your furniture to see if everything works.
As of this writing, rents have risen in some areas
of Manhattan to historically high levels. Union
Square, Flatiron, and SoHo have never been more
expensive. This is mostly due to the fact that so
many technology start-ups want to be there.
Plaza District and Grand Central are starting
to recover their 2007 heights. Nicely built
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space that’s well configured is renting quickly
everywhere. If you’re looking during a landlord’s
market, you’ll be best served by planning ahead
and allotting plenty of time. Space that needs
to be built lingers on the market the longest, so
a good strategy is to look for a space that may
have good overall structure that can be changed
to your specifications. Taking a longer-term view
opens up your options considerably.
Another strategy is to expand your horizons.
Other areas may be more desirable than you
first suspected and on closer examination of your
needs may not be the handicap you once thought.
A third strategy is to simply wait and be poised
to pounce when something good comes along.
Right now, good space in the Flatiron district
between 3,000 and 5,000 square feet and
priced below $50 per square foot rents within
a week of coming on the market. If you’re the
company ready to rush in, you may get it.
Just remember, this is a market and exactly what
you want may or may not be in stock at any given
time. But with the right amount of flexibility and
a devoted search, New York City will give it up
every time.
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LOSS FACTOR
Loss factor as practiced in New York City is a means of keeping
the advertised dollar cost per square foot of a space low.
It’s exactly the same as what happened to other product
packaging. You used to be able to buy coffee in one pound cans,
and people got used to the familiar size and shape of the can.
Sometime in the past, a coffee can started to hold only 15 ounces
of coffee, though the price remained the same. And although
it was stated clearly on the can, most consumers didn’t register
this as a 6.25-percent price increase, even though it was.
This practice has been a part of our consumer society as long
as there’s been packaging. One of my earliest memories of my
father’s working life was him telling me that his company was
designing a package for a Sara Lee Pound Cake that was less
than a pound. Eventually, the price of coffee rose too much to
disguise through skinny packaging and not only did the cans
get smaller, but the price rose, too.
Some amount of loss factor is perfectly understandable. New
York City is a vertical city with elevators, sometimes a lot of them,
and thick walls with thick supporting columns. A floor that has
been divided into several units will have hallways and common
bathrooms. It’s reasonable to expect landlords to include some
ratio of that in their space calculations.
But as it is practiced in 2013 in New York City, the concept of loss
factor has stopped having a rational basis and is simply a way
of raising the rent without raising the rent. Today you will find
buildings with loss factors that approach 50 percent.
The latest run-up started in 2006. That year rents started their
astonishing rise, which reached a 40-percent increase by the
end of 2007. But what got little or no press attention at the
time was the simultaneous rise in loss factors. Buildings that
are actually 100 feet x 100 feet (10,000 square feet) suddenly
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had floors of 12,000 rentable square feet. This also became
known as the “market adjustment,” and its pervasiveness was
justified in the industry by the fact that since everybody was
doing it, then everybody had to do it. There’s some validity to
this argument because based on first impressions, just like the
can of coffee, when a tenant looks at two spaces, one priced at
$42 per foot for 10,000 square feet and one priced at $35 for
12,000 square feet, the second space seems like a better deal,
until, on closer examination, the actual usable area might be
exactly the same for exactly the same rent per year.
PAGE NO. 47
GETTING TO LEASE
SECT. 2 HOMING IN ON THE TARGET
1.0 KEEPING IT ALL STRAIGHT 2.0 SEEING THE SPACE
3.0 DECIDING BETWEEN THE CHOICES
4.0 STARTING TO THINK ABOUT CONSTRUCTION
5.0 HIRING AN ARCHITECT
6.0 PROGRAMMING
PAGE NO. 48
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SECT. 2 HOMING IN ON THE TARGET
1. KEEPING IT ALL STRAIGHT
Now that you’ve defined the broad criteria of
your search—size, location, and whatever else
is vital—and are working through a broker or
on your own, you have a few spaces to see. In
an ideal world you’ll see an average of between
20 to 30 spaces using a good targeted search
in order to narrow down the field to the three
best choices. (As of this writing, there may
not be that many spaces you have to choose
between.) You’ll have to see that many because
even if the first space you saw was the best
one, you’ll need to see many more to confirm
that fact in your mind.
Staying organized is vital at this stage. Trying
to keep 20 or 30 anything straight in your head
is hard, especially so when it’s all brand-new
information and each space will have 5 to 10
salient details to remember. When I organize a
tour of space for a tenant, I make a booklet with
a one-page summary of each space, a printout
from the commercial listing service, and any
floor plans that are available. If you don’t have
something like that, at the very least carry a
notepad and take a minute to make some notes
while you’re in each space. You’ll be grateful later
on when you don’t have to strain to remember
which space had the nasty bathrooms and which
the river view.
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SECT. 2 HOMING IN ON THE TARGET
Each space should fall within the parameters of
your Rules; the rest of the other details will have
to be unearthed along the way.
QUESTIONS TO KEEP IN MIND ONCE YOU
GET INTO THE SPACE:
»»Where are the bathrooms? What condition are they in?
»»What’s under the carpet if there is any? Plywood? Concrete? An old industrial maple floor?
»»If the lobby is attended, what are the hours?
»»What are the hours of the freight elevator?
»»Is the air-conditioning tenant controlled? Or building controlled?
»»If building controlled, what are the hours?
»»What are the hours for heat in the winter?
»»Can the windows be opened and closed?
»»In what condition will the space be delivered?
»»How is freight delivered?
»»How many elevators are there? If there are too few in a tall building,
there may be a line to get into the elevator in the morning and evening.
»»Are the bathrooms ADA compatible. Do they need to be?
»»What are the internet service providers?
»»How much power comes to the space and how much do you need?
»»Look for signs of water damage from exterior or interior sources.
There are a host of other possible questions.
As you go along, the list will grow and the
most important questions will come to mind
more easily.
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The person who shows you the space may be
the landlord’s agent, a super, a porter, or, if it’s
a sublet, someone from the organization that
occupies the space now. That person may or
may not know all the answers to your questions,
but not to worry; they can all be posed to the
landlord if the space is of real interest.
2. SEEING THE SPACE
Now you’re in the space. Hopefully you already
have a floor plan that will show you either the
envelope (the basic outlines) of the space, or
the space as it’s currently built (known as an
as-built plan).
The space you’re looking at may not even be close
to what you’ve imagined. It might be dingy, filled
with small, cramped offices with stained carpet
on the floor and an old, stained, dropped ceiling.
But that can often be changed, brightened, and
fixed. What’s important is to “see” the things that
can’t be changed, like the windows, the location
of the space within the building and in relation
to the elevator, the columns, and the placement
of the bathrooms. Almost nothing you see in a
space is permanent. In fact, most of what’s there
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now probably wasn’t there at some point in the
past. If you have sufficient time before you have
to move, your vision can be realized.
A great tip is to try to see another space in
the building that’s all opened up if there’s one
available. Often there will be an empty floor or a
demolished office or a new installation in which
you can see and feel the potential for the space
you’re considering.
Some spaces will be an immediate no or yes
without your even consciously processing the
reason until later. The accumulation of detail will
strike your unconscious mind and you will “see”
without knowing you’re seeing it.
Some spaces will feel great for many reasons.
Light is normally a huge influencing factor, which
is why rents tend to get higher on higher floors
in buildings. But that isn’t always the case. I was
once looking for a small office to help out some
friends who were sound designers for Broadway
shows. We looked at a few places that were in
the front of buildings and were bright but fairly
square and drab. Then we went to one that was
in the back of a building and looked out on the
grimmest alley imaginable. But the space was an
“L” shape with a nice entryway and a place for a
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conference table, plus there were perfect little
nooks for each designer. That was the one they
took. The alley didn’t matter to them, probably
because they were accustomed to spending their
days indoors anyway. But it just goes to show
that what eventually appeals to you may not be
the thing you first think it will be.
3. DECIDING BETWEEN
THE CHOICES
Let’s say, after seeing 20 or 30 spaces, you’ve
narrowed them down to three with potential. The
others have been eliminated for any number of
reasons: not enough light, too much light, timing
or availability issues, a lease has been issued to
another tenant, bad feng shui, bad juju: anything.
I’m sure I haven’t heard every reason for rejecting
a space, but I’ve heard many.
If you find out there’s a lease out on a space you
really like, have your broker follow up on it anyway
by calling the landlord or agent every week or so.
While it’s more likely than not that the deal will go
through, leases aren’t consummated more often
than you would think.
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Let’s examine the three spaces left. For the sake
of being able to discuss several possible paths,
I’ve created an artificial set of choices. This is by
no means meant to be an exhaustive list of the
possibilities, but these three illustrations involve
common occurrences and will serve as a good
starting point for our analyses.
THE FIRST SPACE IS A PREBUILT OFFICE
IN A CLASS B BUILDING.
A recent trend in Class A and B and even some of
the better Class C buildings has been to prebuild
spaces and offer a high-quality environment
that’s easy to move into and maintain. Many
businesses whose needs are not too demanding
can take advantage of this scheme. It’s rather like
buying clothing at a place like Banana Republic,
where you can get a good-looking wardrobe as
long as you’re an average size and want to wear
an average look. And let’s face it, there are a large
number of businesses that don’t require a unique
environment, just the right number of offices, the
right amount of open space, a conference room,
a pantry, and a reception area all tied together
with a clean look. Landlords who choose to go
this route will most often invest in somewhat
higher-quality finishes in order to entice tenants
and appeal to the greatest number of people.
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They’ll also charge a slightly higher rent.
This scheme is most common in Midtown and
the Financial District. Let’s say the space you
want is in the Financial District because it offers
a lot of transportation options going uptown and
a lot of your employees live in Brooklyn.
This option requires little or no work on your
part. The biggest decision you have to make is
where to buy your furniture. And even though
the space is a little small, it has all the right parts.
The space is listed as 4,500 rentable square
feet but feels smaller and indeed, when a true
measurement of the space is calculated, the
usable footage is 2,650 square feet, a whopping
41-percent loss factor. This is because it’s on a
floor with four other tenants in a Class B building,
where such loss factors are the rule. Still, it has
the three offices you need, a conference room
big enough to seat 14, enough open area for your
15 to 20 employees, nice sunlight, a dropped
ceiling that’s higher than standard, and tile
floors in reception and the pantry. It’s neat, tidy,
and workable.
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THE SECOND IS A FORMER ADVERTISING
OFFICE ON A FULL FLOOR IN CHELSEA.
It has 5,000 rentable square feet, with six offices
rather than three, and the conference room
isn’t large enough. While there’s no dropped
ceiling, which suits your taste, everything else
was installed 15 years ago and is notably dated.
But the space has hardwood floors, windows
on three sides, and is just west of Sixth Avenue,
all of which appeals to you. The per-squarefoot rent is about twenty percent less than the
prebuilt space, but because the space is slightly
larger, the monthly rent isn’t that much cheaper.
However, because it’s a full floor, the loss factor
isn’t as extreme—about 28 percent—so you’re
actually getting a lot more space for your money.
The landlord is willing to do some of the
reconfiguring necessary using her own
contractors, but there are some things she wants
to leave in place that you can’t live with. She wants
to convert two of the offices into a conference
room and leave a plate-glass window in place
that looks like an afterthought. You want floorto-ceiling glass walls for the conference room.
She’ll do the work, but you’ll have to buy the glass
which, it turns out, will cost about $15,000. You
don’t like the light fixtures she picked out. Again,
she’ll install the fixtures you want, but you’ll have
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to buy them, another $10,000 expense. You also
want a premium pantry and café area for your
employees, a double glass door entrance, and
a few other things. The total cost to you will be
$40,000, or about $8 per square foot. The value
of what the landlord plans to do is around $20
per square foot, so in all it’s going to cost about
$28 per square foot to reconfigure the space,
split between you and the landlord.
THE THIRD SPACE IS IN THE PENN
STATION AREA.
It provides the best deal economically speaking.
It is also a full floor of 5,000 square feet and
is completely raw so it will take some time to
build which is ok with you. The landlord will build
it to your specifications based on architectural
drawings that you provide. He’ll do base building
work in addition to paying $40 per foot in a
“tenant improvement allowance” (commonly
referred to as a TI allowance).
However, managing a full construction project
is a daunting task that may be more than you
want to take on. A lot of time and attention will
have to be devoted to the project and you are not
sure that you want to give it over to this facet of
your business right now even thought the results
would best fulfill your needs.
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Which of these three schemes is right for you? I
have encountered each of these three scenarios,
but it’s unlikely you’ll ever be faced with three
such stark choices at the same time. What’s
more likely is that the set of choices you’ll have to
make will be more alike, variations on the same
theme. The point I’m making, though, is that you
may have to make choices between differing
circumstances. Sometimes the choice will be
stark and therefore clear, and sometimes subtle
and not as clear. It’s important to figure out a
way to compare the choices apples to apples.
I find that charts that list the ten or so most
important points across all of the properties
is the best way to do this.
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CHOICE 1
CHOICE 2
CHOICE 3
Financial District
Chelsea
Penn Plaza
RENTABLE SQUARE FEET
(RSF)
4,500
5,000
5,000
USABLE SIZE
2,650
3,600
3,600
RENT PER RSF
$52
$42
$38
ANNUAL RENT
$225,000
$210,000
$190,000
$0.00
$40,000
$20,000
(Architect's fee)
TOTAL 5 YEAR COST,
INCLUDING CONSTRUCTION
(EXCLUDING ESCALATIONS)
$1,125,000
$1,090,000
$970,000
EARLIEST MOVE-IN DATE
January 1
February 15
May 1
$3.25 / RSF
Direct
Direct
AREA
TENANT CONSTRUCTION
COST
ELECTRICITY
LIGHT
Excellent
Good
Good
BATHROOMS
Common
In the space
In the space
(only two stalls)
CLEANING
Included
Not included
Not included
Building supplied
($200/hour overtime)
Tenant
controlled
Tenant controlled
AIR CONDITIONING
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4. STARTING TO THINK
ABOUT CONSTRUCTION
If you’re contemplating taking on a space that
needs construction, the first thing is to decide
how to justify the expense.
Some tenants will think it’s crazy to spend any
significant amount of capital on a space they’re
only renting; others see it as necessary. Most
apartment dwellers wouldn’t dream of spending
a lot of money improving somebody else’s
property. But working property is qualitatively
different than residential property, so the way
one assesses its value is different.
If a working property isn’t configured correctly,
it won’t support your mission or, even worse, it
will be a detriment to it. I don’t mean to suggest
that where people live isn’t as important as
where they work, but most apartment rentals
are a one- to two-year commitment at most,
while businesses typically think in longer
terms. Also, a Banana Republic store wouldn’t
suit the needs of a Starbucks, and an insurance
company has different needs than an Internet
ad-tech company. Even different divisions within
a company work best in different environments.
(See Programming, below).
A landlord’s willingness to pay to customize a
space is entirely dependent on the marketplace
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pressure to do so. If the market is soft, he’ll do it
readily. If the market is in his favor, he’ll do less
work and you’ll have to spend more to get what
you need.
In general, you hope that a new space is going
to support an increase in the overall productivity
of your employees. You may hope that bringing
together two groups or functions will improve
efficiency. Or perhaps the opposite is true: two
groups are currently interfering with each other
and need to be separated. It might be that the
image you want to convey to your clients needs
to be addressed, or perhaps a certain style of
office will attract a certain kind of employee.
Whatever the problem you’re looking to solve,
remedying it through construction needs to be
carefully thought out because the amount of
money and the time it will take to complete will
be significant.
You might consider bringing in an architect at
this stage who can easily advise whether a given
space will suit your needs and keep you from
pursuing a wrong choice.
You should also consult your accountant about
how construction expenses will affect your taxes.
The tax code is intricate and I’m in no position to
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give tax advice. But suffice it to say that if you’ll
be spending a large amount of money, the tax
implications will need to be addressed.
RENTABLE
SQUARE FEET
(RSF)
10,000
TENANT’S
$200,000
SHARE OF
CONSTRUCTION
COST
COST PER RSF
$20
TERM
5 years
COST PER RSF
PER YEAR
$4.00
Generally you’ll have to pay as you go for
any construction that is not the landlord’s
responsibility, and cash flow may be an issue for
you; are you ready to commit the cash needed
to do the construction right away? But one way
to think about the expense of construction is
that it raises the annual per square foot cost.
Divide the cost of construction by the term of
the lease. If you’re spending $20 per square
foot in construction and taking a five-year term,
then the expense you incur can be thought of as
raising the annual per square foot price by $4
($20 per SF divided by 5 years). So a space that
has a rent of $38 per square foot can be thought
of as costing you $42 per foot.
If you don’t want to spend your own cash
up-front, you may be able to borrow money
via what’s commonly known as a “furniture
lease.” Some banks will lend the money for
tenant improvements which you repay like
any installment loan. Typically the term of the
loan coincides with the term of the lease. This
route has some tax implications that might be
very attractive. For instance, you might be able
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to deduct the payments as a current expense
rather than long-term depreciation. The tax
implications should be fully understood before
following up on anything like this, so speak to
your accountant first.
5. HIRING AN ARCHITECT
If what you’re planning to do is complicated
enough, someone will have to hire an architect.
Landlords sometimes provide one at their
expense, but it’s more often the case that
the tenant will hire one and pay for the plans.
It’s worth considering in any event. A well
conceived layout boosts morale and efficiency
and need not be expensive. If your firm hires
the architect, then you’ll also have much more
control over the results.
In addition, if you are required to file plans with
the building department, an architect must
draw the plans and “stamp” them. Architects
must understand basic structural engineering,
electrical, plumbing, fire safety, and a host of
other issues and pass a state exam to prove it.
Their stamp is like a seal of approval that the city
takes very seriously.
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This isn’t as scary as it sounds, particularly for an
office renovation. The architect will understand
what’s needed. The building department
routinely reviews plans for millions of square feet
of office renovations each year and is actually
pretty efficient about it (though as of this writing
the DOB in New York City has instituted rules
that require an asbestos inspection before
issuing any new building permits, which can
significantly slow down the process). There are
also companies known as expeditors whose
only job is to navigate this bureaucracy if that
becomes necessary.
If you don’t have any personal friends who
are or know architects, the best bet is to get
recommendations, and then go see examples of
their work. Be sure to hire one that has experience
in corporate interiors in New York City. Just as
you wouldn’t hire the same real estate broker
that helped you find a house in Mamaroneck,
you can’t expect an architect to know the local
lay of the land without having experienced it. You
should also call some of their previous clients for
references.
At this stage, though, you’re most interested
in having the architect design the space and
develop a program specifically for your use.
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6. PROGRAMMING
In architectural terms, a program is an analysis of
how your company operates and determines the
physical dimensions and layout needed to support
those functions. Is your management structure
flat or hierarchical? How many private offices,
workstations, or semiprivate workstations are
needed, and how much space is needed for each
of these things? What are the other activities
the space must support? A large server room
with supplemental air conditioning? Perhaps you
need space for large-format printers or storage
rooms for samples or promo items. Who’s going
to greet visitors? Where will coats be hung up?
Do the technology and sales departments need
to be separated by soundproof barriers? The
program is the myriad details that define your
company’s activities that a space must support.
Where all of this goes within a space is, of course,
influenced by the location of the unmovable
objects such as the columns, bathrooms, water
lines, and windows, and an architect can artfully
design around those objects in a way that best
accounts for their impact on the overall flow or
feel of the space.
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Though configuration isn’t generally the driving
force behind a move (it’s far more likely that the
quantity of space, either too little or too much,
is the motivating factor), a new space does give
the opportunity to correct past problems. Most
people have a fairly flexible expectation for an
office environment, and they’re willing to put up
with a lot as long as the environment doesn’t
make their work harder. I would argue that
what most people really want from workplace
design is an environment that makes work easier
or at least doesn’t impede it, and reduces to a
minimum the steps needed to perform a given
task. The new program might be able to address
these issues.
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GETTING TO LEASE
1.0 THE OFFER
2.0 CRAFTING THE OFFER LETTER
SECT. 3 ACQUIRING THE SPACE
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1. THE OFFER
Once you’ve seen enough spaces so that you
can narrow down the field to a reasonable
number, it’s time to start putting together offers.
It’s not uncommon to submit offers for multiple
spaces simultaneously and there are various
reasons for doing so. It might be that you really
can’t decide if one space or another is best and
you’ll pick the one that offers the best overall
deal. It might be because your timing is such
that you can’t afford to have your deal fall apart
and then have to go through the entire process
of negotiation again from the very beginning.
Or a landlord might be giving off signals that
he’s not sure he wants you as a tenant, so you
don’t want to put all your eggs in that basket.
Whatever the reason, it’s not unethical to do
it. New York is the big league and everybody
is playing hardball. This isn’t to say that no one
will ever get angry about the collapse of a deal;
even among professionals, emotions can get the
better of people sometimes. But all professional
players know that this is part of the game and
that everyone will live to play another day.
An offer letter, sometimes called a term sheet, is
the first of two negotiations you’ll have with the
landlord. The offer is a summary of the material
business points upon which you and the landlord
must agree. It contains the material facts, the
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“business terms,” mostly having to do with dollars
and cents about things like rent, security, term,
and the like.
The second negotiation will take place once
the lease has been issued by the landlord (who
always writes the initial draft of the lease) and
will be conducted mostly by the lawyers if you
have one. The lease must include all of the terms
negotiated in the offer letter but there must also
be agreement on a host of other issues such
as the legal definitions for matters such as
“default,” what constitutes an “acquisition,” what
happens if the landlord defaults on his mortgage,
guarantees of “quiet enjoyment” and so forth.9
The two negotiations will sometimes flow
together. This can happen for various reasons.
Sometimes a business point hasn’t been
sufficiently clarified during the first negotiation
and must be readdressed during the lease
negotiation, or maybe neither party thought of
it until after the lease was issued.
The only hard and fast rule about the offer is
that you should try to imagine everything that’s
important to you at this stage; everything that’s
nonnegotiable, that you absolutely have to
have, should be spelled out in the offer letter.
9
FOR DESCRIPTIONS OF SOME OF THE LEGAL TERMS USED, GO TO THE GLOSSARY AT THE END OF THE BOOK
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There are occasions when it’s better to leave an
important matter unsettled until later, after the
lease has been issued, which is why at this stage
the process becomes as much art as science.
For instance, I once negotiated a lease where
the tenant wanted the landlord to do some
additional fireproofing and said so in the offer.
The landlord kept returning the offer letter with
that portion crossed out. The negotiations for the
term sheet dragged on and the tenant made the
decision to request a lease and to let the lawyers
discuss the legal ramifications of the fireproofing.
In that particular instance the landlord ended
up providing what the tenant wanted, but only
because another new tenant on an adjacent floor
wanted the same thing. So it goes.
The lease will be created using the offer letter
as a starting point. In theory once the final offer
has been accepted, you should be done with
the business terms and free to concentrate
on other details in the lease (see www.
gettingtolease.com for a sample offer letter).
An important point to remember is that an offer
isn’t a legal document and any offer you make
isn’t binding in any way. In real estate sales and
leasing, only signed and delivered contracts or
leases are legally binding to either party. No
statements, written or verbal, are enforceable
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up until the final contracts or leases are signed
and delivered, and either party can walk away at
any moment without any legal ramifications. It
doesn’t hurt to include a reminder of that at the
end of any written offer.
2. CRAFTING THE
OFFER LETTER
The offer is typically a two-to-four-page
letter with 20–30 main points. It doesn’t need
to use a lot of legalistic language, but rather
can rely on generally accepted summaries
of understanding. For instance, the electrical
charges can be “directly metered” rather than
“the Landlord shall install and maintain an
electrical meter that measures the electrical
usage solely for the Premises and Tenant shall
be responsible for paying the utility company
directly,” or something to that effect.
There is a generally accepted format for
organizing offers:
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DEFINE THE SPACE
The first point is to define the space with the
address and floor or suite number. Seems
obvious enough, but some landlords have many,
many spaces on the market, so you need to make
sure they understand the space being discussed
or problems may arise later.
DEFINE THE USE
The next point is the “use” clause. A landlord
needs to understand how you’ll use the space
and the impact your use will have on the building
systems and the other tenants. This is generally
one of the first questions a landlord will ask
even prior to an offer, and by the time the offer
is made, it shouldn’t be a surprise.
Landlords are very sensitive about what sort of
activity goes on in their buildings. For example,
they won’t want manufacturing when most of
the building is already general office use, or
heavy freight loading if there’s no dedicated
freight elevator.
In many ways a perfect tenant is like a perfect
roommate: one who’s rarely there, pays the rent
like clockwork, uses no services, and makes
no complaints. In the real world, the best-case
scenario is “nice, easy office use”: a company
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whose main commodity is ideas or services, as
opposed to one that manufactures a product
within the space, or that requires a constant
flow of people or goods going in and out, or that
might do something that disturbs other tenants
with noise or odor or vermin. All of these less
attractive types of uses can find accommodation
somewhere, but Manhattan—and all city
centers, for that matter—is increasingly focused
on easier office uses.10
Most landlords also want nothing illegal to
happen (though sometimes they don’t care)
and it isn’t unusual to find a “morals” clause
in a lease that states that no pornography will
be created in the space and nothing illegal will
happen there. That may not be an issue for
the vast majority of businesses, but I’ve had
it become an issue when the potential tenant
is a website that permits adult content and
doesn’t want to get in trouble with the landlord
if someone posts a naked picture of himself. An
instance like that would have to be negotiated in
order for the tenant to avoid being in “default”
of the lease in the regular course of business.
The amount of “foot traffic” going in and out of
the space is of paramount concern to landlords.
Some buildings will welcome businesses such
10
MOST MANUFACTURING BUSINESSES CAN’T AFFORD MANHATTAN RENTS ANYMORE, ANY WAY.
NEW YORK’S GARMENT MANUFACTURING INDUSTRY HAS SHRUNK TO A MERE SHADOW OF ITS FORMER
SELF AND THERE’S NO OFFSET PRINTING DONE THERE ANYMORE. THE CITY HAS TRIED TO USE ZONING
TO CREATE MANUFACTURING-ONLY AREAS IN ORDER TO PRESERVE IT AS PART OF THE OVER ALL
CULTURE OF THE CITY, BUT IT SEEMS LIKE THEY’RE TRYING TO PRESERVE A SPECIES THAT DOESN’T YET
KNOW IT’S EXTINCT ON THIS ISLAND.
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as employment services, spas, or medical uses
that depend on customers coming and going and
some won’t. The reasons are varied, but mostly it
has to do with the elevators, meaning wait times
and wear and tear on the equipment.
Some buildings are dedicated to a certain
industry: some will only accept fashion accessory
businesses, or toy companies, or tabletop wares.
In past times this made it easier for buyers to
visit several showrooms all on the same day.
While it’s less common now that desktop buying
is so easy, it still makes some sense today, and
a few buildings are doing just fine using this as a
rationale for use.
TERM
Next is the length of time you want to reside
in the space. By the time you’re ready to make
an offer, you should have an accurate idea of
how long you want it for and how long the
landlord is willing to give it for. The length of
term is not entirely your choice. Each landlord
has a different set of circumstances he or she
must consider. Having a building full of tenants
with ten year leases might help a refinancing
strategy. Or having shorter terms might help it.
Who knows? In any event, you should ask for
what you want and be ready to change course
if needed.
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As mentioned earlier, the length of term
determines a lot about what the landlord will be
willing to do to the space to make it ready for you.
Generally speaking, a landlord won’t perform
significant construction for a lease term less
than five years. If you want to lease for less than
that, you’ll mostly have to find something that
closely suits your needs or be willing to pay for
the work yourself.
POSSESSION
When do you want to take possession of
the space?
THE TIMING FACTORS INVOLVED HERE ARE:
»»When does your current lease expire?
»»How much overlap is optimal?
»»How long will it take to get the space ready?
»»Are there seasonal issues (i.e., your busiest season is the spring and you need to be in the space and working by February 1)?
»»Is there already a tenant in place that needs to move out before
you can move in?
»»Do you need to sublet your current space?
»»Do you have a hiring strategy that needs to be accommodated?
»»A stock shipment is going to be delivered on a certain date.
»»A large contract needs to be fulfilled beginning on a certain date.
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You may be looking earlier than you strictly need
to and therefore would like to delay possession
until closer to the expiration of your current
lease. Or you may have a drop-dead date for
possession beyond which you cannot accept. Or
you may be in complete sync with the landlord
already. Whatever it is, this is where it goes.
There may be some other factors that affect
your possession that are only in the landlord’s
SUBSTANTIAL control, the most common being that he needs
COMPLETION
to do some work on the space, either “base
When a landlord is
performing work on a building work” or “tenant improvements.” In
space, this is the point at that case, possession might be cited as “upon
which improvements to substantial completion of landlord’s work.”
the premises have been
This means that you don’t pay rent until the
completed to the extent
where nothing that needs construction is complete.
to be done further will
impede the occupancy.
Even though there may be
minor issues that need to
be corrected (baseboards
added, touch up paint,
etc.) a tenant can occupy a
space without being overly
inconvenienced.
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RENT
How much to offer? The landlord has put a
value on the space in his advertisements but,
for the most part, every landlord expects
to negotiate. Therefore the “ask” is usually
higher than the “take.” All tenants offer well
below what they know the landlord will accept.
Therefore the “offer” is less than the “take.”
So what’s the take?
As little as twenty years ago, there was
no Internet, no commercial multiple listing
service (MLS), and landlords depended on the
newspaper ads of other landlords, along with the
conversations they had with brokers and other
landlords in order to value their spaces. The
same process applies today in large measure, but
information is more readily available and landlords
will have a figure in mind.
LANDLORD’S ECONOMICS 101
A professional landlord looks at a leasing deal from two perspectives:
1) the total amount of money he’s going to receive and,
2) how much cash f low it will produce. In other words, while the monthly rent
might be the most important number to you, he’s also going to take the long
view.
He’ll analyze the deal as follows:
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GETTING TO LEASE
Annual rent PLUS rent increases
PLUS additional charges (electricity,
water, sprinkler, guard charges)
EQUALS Gross Rent
MINUS
Deal-making expenses (free rent,
commissions, legal fees), construction
costs, the regular costs of running the
building (taxes, insurance, maintenance,
management fees, electricity), as well
as the mortgage (if any)
EQUALS his total Net Income
Net Income is the total amount of money
in his pocket. Only then does he know if
the amount of money you’re offering is
sufficient for him to make a deal with you.
The X factor in all this is the mortgage.
You have no way of knowing what that
number is. Even if you can find out the total
mortgage amount from the public record,
you don't know if it's a 5-, 10-, 15-, or 20year mortgage.
This is the same general calculation any
investor makes, working back ward to
determine the value of any asset. The
landlord determines the minimum rent
level by knowing how much it ’s going to
cost him to maintain it. He then adjusts
SECT. 3 ACQUIRING THE SPACE
the value of the space based on factors like
the location and demographics ( Union
Square vs. Plaza District), the placement
in the building ( low f loor, high f loor), the
view, the number of windows, etc., and
that becomes his bottom line.
You get to your bottom line similarly,
but with a different emphasis. You back
into how much a space is worth to you by
calculating how much income you can
produce there. In an ideal situation, you
would work together with a landlord to
determine a fair value for a given space. But
New York is by no means an idealized or
rational commercial situation. The macro
forces of population pressure and New
York’s status as a world-class economic
power add an intangible multiple to all
real estate values, both residential and
commercial.
But beyond that, the space ref lects a value
in his mind that has little to do with a
balance sheet and everything to do with:
the market forces at work, the news of the
day, the research he has at his disposal, his
personal preferences, his desire for longterm safety over short-term gain, and his
relationship with his bank.
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There are many ways to approach a landlord on
this issue. One of them is to be aggressive and
offer much less than the asking price to test the
limits. Some landlords will take this approach
in stride and either betray their real bottom line
or parry back, and some will act offended and
either not respond at all or call the broker with
an angry tirade.
Most commonly, landlords price a space higher
than they expect to get, so it’s most common to
offer less than the asking price. But negotiating
on this point is a fine art, and there’s no set
means to getting what you want or to knowing
exactly what the landlord wants. If you’re willing
to be tough and are able to walk away from a deal
if it doesn’t suit you, you can offer a bottom-line
figure and sit back and wait. More often both
tenant and landlord need each other and will
have to triangulate on the final number.
You almost never should offer the asking price,
even in a tight market and even if you really,
really want the space. In some rare instances,
it’s OK to do this in order to put yourself on a
level footing with other players for the space,
but most often it’s best to leave yourself some
negotiating room.
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ESCALATIONS
The rent you pay on the first day is the “base
rent.” How much it rises and at what intervals
is the “escalation.” Because the lease covers
multiple years, regular rent increases will be
built in to compensate the landlord for rising
expenses and, presumably, to account for
bettering market conditions. In New York City,
the convention is to pin escalations not only to
base rent, but also taxes, and sometimes fuel and
electric costs. But there are some expenses you
can expect to remain the same for the duration.
Each landlord has his own idea of how to handle
this and which will be to his greatest advantage.
Landlords are very reluctant to alter their chosen
schemes, and it will always be debatable if one
or another is more to your advantage. It’s usually
best to accept the scheme they propose and
try to tweak it to be more to your advantage if
possible. Below is a brief summary of the various
schemes.
BASE RENT »»Fixed:
ESCALATIONS:
The rent rises a fixed amount per year, most
commonly 3 percent, but it can be between 2 and
5 percent. Whether or not this is a good deal for
you depends on market conditions. In the short
term this can be a painful figure if market rents fall
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or stall. But if the market rises, you could have the
advantage of a substantially below market rent.
»»Consumer Price Index (CPI):
Rents go up in direct proportion to the cost of
living index as published in a major newspaper,
typically the Wall Street Journal or the New York
Times. In the 1970s, when 10 percent and higher
inflation wasn’t uncommon, this became a
bonanza for landlords. These days, with inflation
low, it’s more to a tenant’s advantage.
»»Porter’s wage, with or without fringes:
Rents will rise in direct relation to the rise in cost
of labor in the building. This scheme became
popular in an era when organized labor costs
were rising sharply. A building that incorporates
this scheme has unionized workers, and their
wages and benefits will be clearly defined by
the contract with the union. An index exists that
factors in the cost of labor and is meant to reflect
the rise in costs in general. Only a very limited
number of landlords still use this scheme, mostly
older operations in Midtown buildings. Since
labor contracts are typically for several years,
you can predict the increase fairly accurately.
There are historical charts available that will
show past increases in detail but the formula has
to be cross referenced to an index.
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»»Direct operating expenses:
Landlords keep track of all expenses in the
building and pass along a proportionate share
to each tenant. Class A buildings tend to
charge escalations this way. For one reason,
they charge higher rents and tenants want
the landlord to be accountable. For another
thing, the owners of large Class A properties
tend to be public companies and so their
expenses are more transparent. Before
computers, it was very labor intensive for
landlords to track and document expenses
easily and accurately. Now any landlord with
QuickBooks should be able to give a fairly
accurate, documented account of his expenses.
But beware of how direct operating expenses
are defined. For instance, if there’s construction
going on in the building, when is it a capital
improvement or a necessary repair? The list of
items that can be considered as one of these
expenses should be limited and clearly defined.
THE BUMP
This concept sounds slightly salacious but has
to do with the notion that on a long-term lease,
the rent will jump some fixed dollar amount at
some defined point in time. For example, a tenyear lease starts at $40 per foot, but in year five
the rent bumps an additional $4. This will be in
addition to the other escalations that have been
added to the rent and means that the average
base rent for the space will be $42.
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THE MATH: WITH AND
WITHOUT THE BUMP
First column:
Years 1 – 5, base rent:
$40.00 per RSF Years 6 – 10, base rent:
$44 per RSF base rent
Second column:
Years 1 – 10,
$42 starting rent
WITH A 3% ANNUAL ESCALATION
WITH $4.00 BUMP
IN YEAR 6
HIGHER START RATE
Year 1
$40.00
$42.00
Year 2
$41.20
$43.26
Year 3
$42.44
$44.56
Year 4
$43.71
$45.89
Year 5
$45.02
$47.27
Year 6 (bump)
$50.37
$48.69
Year 7
$51.88
$50.15
Year 8
$53.44
$51.65
Year 9
$55.04
$53.20
Year 10
$56.69
$54.80
In terms of the overall rental cost of leasing a
space, incorporating a bump or starting the lease
at the average amount has minimal effect. At
the end of the day, you pay close to the same.
So why do it? It’s actually quite common, and
the reasons could be advantageous to either the
landlord or the tenant.
HERE ARE SOME POSSIBILITIES:
»A
» tenant projects future income as more than she earns today, and she would rather pay less today and more tomorrow.
»»A tenant may take a ten-year lease in order to get the best package
of concessions from the landlord, but her growth projections may show
her needing a larger space after five years. She’s willing to take the risk of
finding a subtenant willing to pay the higher rent at a later time.
»»A landlord may view the market as soft at the moment, but he may have
good reason to believe it will improve in the future. He doesn’t want to be
stuck with a tenant paying below market rent five years from now.
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There are certainly many more possible
rationales for this scheme; it just has to be built
into your thinking in the correct way.
REAL ESTATE TAX
ESCALATIONS
When a landlord sets a price for his space, he
includes the cost of real estate taxes in that price.
If you’re paying $40 per foot, perhaps $8 per foot
of that he will have to pay out in taxes. Next year,
the taxes may rise to $8.24 (a 3-percent rise).
He’ll ask you to pay an additional $.24 per foot in
rent. (The taxes may rise to $8.50 or to $8.02…
the tax system in New York City is notoriously
capricious.) This is the convention in New York
City and it’s unavoidable.
What’s somewhat negotiable is the year on which
the taxes are based. You want your taxes to be
based on the latest date possible. New tax bills in
New York City are due on July 1, making the base
year described in the term sheet 2013/2014 for
the period from July 1, 2013, to June 30, 2014.
On July 1, 2014, the taxes will go up again. If you
were signing a lease in February 2013 and the
base year described in the lease was 2013/2014,
you wouldn’t get an additional bill for taxes until
July 1, 2014. But if it’s described as 2012/2013,
you would get a bill for additional taxes on July
1, 2013, only a few months after you moved in.
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BASE TAX YEAR RAMIFICATIONS
BASE YEAR 2013
LEASE YEAR
TAX PER RSF
$ INCREASE
CUMULATIVE
CHARGE TO
TENANT PER RSF
COST PER YEAR
FOR 10,000 SF
1
2013
$5.00
0
0
2
2014
$5.15
$0.15
$0.15
$1,500
3
2015
$5.22
$ 0.07
$0.22
$2,200
4
2016
$5.35
$0.13
$0.35
$3,500
5
2017
$5.50
$0.15
$0.50
$5,000
6
2018
$5.70
$0.20
$0.70
$7,000
7
2019
$5.79
$0.09
$0.79
$7,900
8
2020
$5.89
$0.10
$0.89
$8,900
9
2021
$5.95
$0.06
$0.95
$9,500
10
2022
$6.11
$0.16
$1.11
$11,100
Cumulative Cost
$56,600
BASE YEAR 2014
LEASE YEAR
TAX PER RSF
$ INCREASE
CUMULATIVE
CHARGE TO
TENANT PER RSF
0
0
0
1
2013
2
2014
$5.15
0
COST PER YEAR
FOR 10,000 SF
3
2015
$5.22
$0.07
$0.07
$700
4
2016
$5.35
$0.13
$0.20
$2,000
5
2017
$5.50
$0.15
$0.35
$3,500
6
2018
$5.70
$0.20
$0.55
$5,500
7
2019
$5.79
$0.09
$0.64
$6,400
8
2020
$5.89
$0.10
$0.74
$7,400
9
2021
$5.95
$0.06
$0.80
$8,000
10
2022
$6.11
$0.16
$0.96
$9,600
Cumulative
Cost
$43,100
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This chart shows a hypothetical 10,000 square
foot space and hypothetical tax increases. In
the example above, an owner pays $5.00 per
RSF in tax for 2013 and taxes rise at a rate of
2% to 4% per year. In this example if a tenant's
base year is 2013, then in 2013 it would pay no
additional tax, in 2014, the tenant would pay
an additional $1,500 in tax, in 2015 it would be
$2,200 and so on. If the base year is 2014, then
the additional tax in 2013 and 2014 would be
nothing, in 2015 it would be $700.00, in 2016
it would be $2,000 and so on. The resulting
savings becomes significant over time.
NOTE: In a real-life situation, it is unlikely that
you would get two full years tax-increase free.
12-18 months is the most that most landlords
will negotiate.
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CAM AND OTHER
ESCALATIONS
CAM stands for “Common Area Maintenance”
and typically includes other expenses that the
landlord incurs, such as electricity for hallway
lighting and the elevators and the like. Fuel for
heat is also another large cost center. While
it’s arguable that the base escalation ought to
be sufficient to cover these rising costs, it isn’t
uncommon for landlords, in Class C buildings
particularly, to build an escalation provision into
the lease that guards against price shocks in
electricity, heating oil, and, in Manhattan, “steam
charges” by passing these increases along to you.
In my experience, it’s not unusual to build these
escalations into the lease and then never invoke
them. Most landlords will gladly tell you the
history of their use of them, and the vast majority
will tell the truth.
ELECTRICITY
After rent, electricity will be your highest
occupancy cost. As such, it’s subject to all
manner of schemes for paying for it. Also, in New
York City, the landlord may be in the electrical
business as well as the rental space business. If
your electricity is not being metered directly to
the utility company, it is likely that the landlord
is making a profit by marking up the electricity.
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DIRECTLY
METERED
This is usually the best, cheapest scheme. You
pay for what you use based on a meter read by
the electric company.
SUBMETERED
In this scheme, there’s one main meter for the
whole building, which the electric company
reads. But there’s a submeter installed for each
space that monitors the amount of electricity
used for that space only.
Sometimes you’ll pay the same amount as if
there is a direct meter, but more commonly the
landlord will charge an extra amount, typically 7
to 15 percent on top of the submetered amount.
This figure is sometimes negotiable, sometimes
not. Sometimes the landlord has subcontracted
out the monitoring of these submeters to a third
party. That company makes money by charging
the extra amount and the landlord has no room
to negotiate. There’s at least one landlord that
owns a submetering company as an affiliate
that services his buildings exclusively and he still
charges a mark-up.
RENT
INCLUSION
It’s also very common to charge a fixed amount
per square foot for electricity based on the
amount of space you rent. In New York City,
that figure was most commonly $3 to $3.50 per
rentable square foot in 2013. Like submetering,
sometimes this is negotiable and sometimes not.
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Most Class A buildings use the rent inclusion
scheme, but so do many other buildings,
particularly for smaller spaces, throughout
the city.
PROPORTIONATE
SHARE
In some buildings, usually small to mid-sized,
it’s not uncommon for there to be one direct
meter for the floor and for the landlord to
charge a proportionate share to each tenant.
If you have a third of the floor, you would pay
a third of the metered amount. This is a fine
scheme if everyone on the floor has a similar
type of business and none have extraordinary
electrical demands.
It’s not uncommon for a landlord to use more
than one of these schemes throughout the
same building. Every floor of a building that
was built 90 years ago has gone through many
different configurations; it may have been
divided, recombined, and subdivided again. In
a metered or submetered space, every time a
room is subtracted from one office and added
to another, the wiring for the lights, electrical
outlets, and maybe air-conditioning has to
be rerouted to the new meter so that costs
can be apportioned correctly. If that gets too
complicated, the landlord may choose to ignore
the meters and charge for electricity by the
square foot via rent inclusion.
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Sometimes a landlord will agree to add a submeter
to a space if a tenant really wants it. Who pays
for that is a matter of negotiation and will be part
of the overall negotiation of construction issues.
The actual cost of electricity can vary greatly.
Generally speaking, the more directly electricity
is charged to a tenant, the better deal it will be.
But it’s hard to sort out precisely because larger
buildings have the ability to negotiate directly
with the electric company to purchase power
and can get a wholesale discount. The landlord
might charge $3.25 per foot and only pay
$2.25 per foot. In a building where each tenant
pays for his own electricity, a landlord has no
incentive to negotiate with the utility company
and may let each tenant pay the retail rate. So
you might be paying $3.25 per foot directly to
the utility company anyway.
I go into some detail here so you will understand
the system. Unfortunately, this is one of those
areas where you’ll have little leverage to change
the landlord’s scheme unless you’re a very large
tenant or are willing to bear the cost of making
the change. Beware of getting too caught up in
trying to find incremental savings in electricity.
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There are a lot of forces at work here and you can
end up shooting yourself in the foot if you don’t
account for everything correctly.
OTHER CHARGES
In Class B and C buildings there will often be
a set of other monthly charges, often called
“loft” charges. These are absent from Class A
buildings, which roll all costs into one rent figure.
These charges generally include water, sewer,
sprinkler, Business Improvement District (BID),
and sometimes guard charges.
WATER, SEWER, AND
SPRINKLER CHARGES
These aren’t an insignificant cost to a landlord
(though, I suspect, not so onerous that they are
justified in adding them in as an additional cost
above and beyond the base rent, but that’s just
my opinion). Depending on the size of the space,
I’ve seen these charges run from $50 to $300
per month per item. The upside is that the costs
of these items remain fixed for the length of
the lease. The downside is that they are rarely
negotiable in a landlord’s mind. They’re often
tossed into the lease negotiation as if they’re an
insignificant afterthought. And to be fair, it’s not
a lot of additional money when you’re talking
about a $20,000 per month rent. But if these
additional charges haven’t been mentioned and
you’re negotiating on a Class B or C building, you
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should inquire and include it in the offer.
BUSINESS
IMPROVEMENT
DISTRICT (BID)
A BID is created within a geographic area to
improve services there like the street sweepers
you see wearing overalls and caps and emptying
the trash cans in Union Square or Wall Street or
Times Square. BIDs are administered by the city
and fees are charged to all businesses within that
area . The city collects the fees like any other tax.
You may receive a bill from the city directly, or
the landlord may pay the BID tax and pass the
cost along to you.
GUARD
CHARGES
Sometimes a landlord will have instituted a
guard service in the lobby after some period of
not doing so. He may have done it after being
asked by the tenants who want additional
safety, or in response to market pressures to
upgrade the building’s services. Only a minority
of landlords pass along this charge to tenants,
but it’s common enough to mention here. The
charge will be proportionate to the size of the
space. This is another one of those charges that
the landlord will most likely not negotiate, but it
should be spelled out in the offer so there are no
surprises later.
Whatever the “other” charges are (if there are
any), they’ll be clearly spelled out in the lease.
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And while most often they’re described per item
(i.e., $50 each per month for water, sewer, and
sprinkler), occasionally you’ll run into different
schemes for charging for these things. One
medium-sized landlord adds an annual charge
of one dollar per square foot to his rents to cover
all these costs. Another company with several
properties in Midtown requires a thirteenth
month of rent, payable every June, to cover
real estate tax increases and all other charges.
Remember that Class A buildings and many
Class B and even some Class C buildings don’t
apply these charges.
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FREE RENT & RENT ABATEMENT
These two concepts are sometimes
interchangeable. You’ll hear them called one or
the other for various reasons, but the concept
is that you legally possess the space for some
amount of time before you start paying rent.
Free rent is often used as an inducement to the
tenant to rent. A landlord may offer it as a means
of smoothing the tenant’s transition from one
space to another, to give them a chance to get set
up or to do construction without being burdened
paying for two spaces during a transition time. A
tenant may look at it as a way to lower the overall
cost of a rental.
The majority of the time, a landlord will grant
some amount free rent for new leases signed,
but this doesn’t always happen, and the amount
of free rent, as with everything else, is dependent
on current market forces and what’s reasonable
is what the market will bear. It is common for a
landlord to offer two months of free rent for a
new five year lease and four months free for a
new ten year lease.
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Here are some other common scenarios:
FREE RENT
FOR WORK
Smaller landlords, sublandlords (who, by default,
become small landlords), and cash-strapped
landlords will often offer to abate the rent for
some amount of time with the understanding
that they’re trading free time in the space to pay
for whatever improvements you choose to make.
This is sometimes a great deal for a tenant and
sometimes not, depending on the circumstances.
All free rent is an expense to the landlord, but not
all free rent is a great benefit to the tenant.
A given space may or may not be ready to
move into on the day a tenant gets legal
possession.
Let’s say the monthly rent on a space is $10,000
and the landlord is offering four months’ free rent
but won’t do any work on the space; the tenant
must make all the alterations on her own. Let’s
also assume it will take a month to complete the
work before the tenant can occupy the space.
That means the tenant will be able to occupy the
space for free for three months, an actual value
of $30,000. Whether that’s a good deal depends
on the overall circumstances.
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But if construction is going to take three
months then the actual value to her would be
only $10,000.
Here are a couple of stories where free rent was
an actual material benefit to the tenant.
A building in downtown Manhattan had an
ownership structure that was out of the ordinary.
The actual owner of the property had signed
a long-term “triple-net lease” with another
individual who then sublet the spaces to tenants.
This building wasn’t small (it was about 100,000
square feet). Because of a complicated tax matter,
the sublandlord didn’t want to report that he had
any construction costs to the landlord, so he
required all tenants to do their own construction.
However, he was willing to give them back their
costs by way of free rent, dollar for dollar. So
the tenant I represented submitted statements
and documentation to the sublandlord showing
that she had spent X dollars and she received
X amount of free rent. This was over and above
some free rent the sublandlord granted at the
beginning of the lease for construction time.
This was a unique situation in my experience, and
it took a while to write language into the lease
that made everyone comfortable. But in the end,
it all worked out as it was supposed to.
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In another situation, the landlord offered to build
a space, “turn-key” for a tenant. The landlord
would supply the architect and the contractor up
to a certain dollar amount for the construction. If
the tenant wanted to spend more than that, he
would have to pay for it himself. But the landlord
didn’t want to front any of the construction costs.
He offered two months’ free rent at the beginning
of occupancy and eighteen months’ half rent after
that. So even though the tenant had a large capital
cost up-front, for a year and a half, the tenant had
very low occupancy costs, which worked out well
for him.
As you can imagine, this isn’t an exhaustive list
of situations you may run into. Landlords are as
unique as fingerprints and all have their own idea
of what’s a good deal for them, and you’ll have
your own ideas. In the end, a good deal is when
both parties come away happy.
MINIMAL
FREE RENT
Sometimes a landlord who is providing a space
in “move-in condition,” meaning he is going to
make the space available to you with everything
you need to get started, will want to offer little
or no free rent using the rationale that you’ll
have no capital costs to move in. Once again,
depending on market conditions and the
pressure he’s under to fill the space, you may or
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may not be able to leverage free rent from him
beyond what he’s offering.
HALF MONTHS
OF FREE RENT
Some smaller landlords simply want the rental
income right away. If that’s the case and you
really feel you need some free rent, offering to
pay half months of rent for some period of time
will sometimes smooth the way.
While it’s not the most common occurrence,
either the tenant or the landlord may suggest
half rent for some period of time. A tenant may
offer it in order to encourage extra free rent,
and a landlord may offer it because he wants
the immediate cash flow. If it’s agreeable to
both parties, the money works out the same
in the end.
AIR-CONDITIONING
Air-conditioning may be so expensive to
provide that it’s treated as a separate line item
in negotiations. In larger buildings, it might
be provided as an overall part of the building
services. In smaller buildings it might be provided
by window units that you must provide yourself.
This is another one of those systems landlords
will be fairly set in their ways about, and you’ll
have little opportunity to negotiate except in a
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few particular circumstances as noted below.
There are two general categories of airconditioning: tenant-controlled and building
supplied. As the names imply, tenant-controlled
A/C can be turned on and off at will by the tenant.
Building supplied A/C will work on a set schedule,
usually during business hours Monday to Friday
and half the day on Saturday. Generally it will
be supplied during the same hours that heat is
supplied during colder months. If a tenant wants
A/C during different hours than the standard,
generally there will be an “overtime” charge.
TENANT-CONTROLLED »»Central air-cooled units
AIR-CONDITIONING
Air-cooled units, sometimes called “package”
units because all the components are contained
in one large metal box, like an enormous window
unit. Most commonly, an air-cooled unit must be
installed within the office space near a window to
draw in the fresh air and vent out the hot air. They
have the advantage, however, of being tenantcontrolled. This is a huge advantage if you need
flexibility to start early or work late.
The fire department likes this scheme because
they would rather that each floor of a building—in
fact, each space—have its own air-conditioning
system. Because ductwork that runs throughout
a building can also be a path for fire, they would
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prefer that each floor be self-contained and
fireproof in and of itself. For this reason, some
landlords are decommissioning older systems
and installing package, air-cooled, HVAC systems
without being prompted by a tenant.
When crafting the offer, it’s common to
assume that the tenant will be responsible for
the daily upkeep of the unit, and that they will
have some kind of maintenance contract with
an A/C company that will cover cleaning and
changing belts, etc. The landlord is almost always
responsible for changing major components if
they should break. This is important to make
crystal clear, because changing the entire unit
can easily cost $20,000 and any one major
component can easily cost $5,000. Getting the
unit in and out during a major repair will cause
major disruption to the business, and not having
A/C during the height of summer will be another
huge discomfort; the last thing you want to do is
spend a couple of weeks wrangling about who’s
going to pay for what.
»»Window Units
Although window air-conditioning units are
the ugly, light-blocking, noisy bastard children
of the A/C world, they have their places. The
advantages of these are the low installation
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cost—in 2013 it can easily cost $30,000 to install
central air in a 5,000-foot office—and the fact
that micro-cooling zones can be created. If you
have several window units, you can easily turn on
only one to cool a small work area, whereas with
a centralized unit of any kind, for the most part
the entire system is either on or off.
BUILDING
SUPPLIED A/C
When a landlord provides the A/C, it could mean
that there’s a building-wide system or one shared
system for each floor. In either case, the landlord
will set the hours of operation and using the A/C
beyond those hours will probably cost extra.
If there’s one unit per floor, then there’s probably
a large air-cooled unit somewhere. If the system is
building wide, it usually means there’s a “cooling
tower” somewhere in the building, usually on the
rooftop, that cools water and sends it through to
each space, where a fan blows cool air into the
space.
Usually, the cost of this is built into the rent, but
the landlord may break out the cost and charge
for this “by the ton.” A ton of air-conditioning
is 12,000 BTUs (British thermal units). So if
you have a 12,000-BTU air-conditioner in your
window, you have one “ton” of A/C, and. if you
have a 60,000-BTU air-conditioner in your office,
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you have 5 tons of A/C. While it’s not necessary
to know the precise meanings of all this technical
jargon, you do have to know how many tons of
air-conditioning it will take to cool a given space
for a given amount of time.
Let’s say you have a 10,000-square-foot space.
A standard amount of air-conditioning for this
space would be about 25 tons. A landlord might
have a chilled water charge of $100 per ton for
this, or $2,500 extra per year if you’re going to
use the A/C only during regular business hours.
OVERTIME A/C
A landlord might provide air-conditioning for
certain hours of the day, usually something
like 8:00 a.m. to 6:00 p.m., Monday through
Friday. As a part of the negotiation, he might be
persuaded to provide the A/C for longer hours or
for certain hours on the weekend. But if you want
to use the A/C beyond the allotted hours, you will
probably run into “overtime” charges. The cost of
overtime A/C can easily run into the hundreds of
dollars per hour. The reason is that a large cooling
tower that cools the entire building lowers the
overall cost by providing economy of scale. When
a cooling tower designed to cool 250,000 square
feet of space is being run to cool 10,000 feet of
space, the large scale works against economy.
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In this day and age, with people working longer
and longer hours, it’s not unusual for a single
large tenant in a building to be paying for
overtime A/C already, and it pays to inquire of the
landlord whether or not that’s the case. As you
can imagine, a landlord will reveal such a thing
reluctantly, but it doesn’t hurt to ask, and if it’s the
case, he might be persuaded to lower the charge
to you since he’s already being compensated by
that other tenant.
SUPPLEMENTAL
UNITS
It’s also very common for tenants to install their
own supplemental A/C units either to provide
the A/C for the overtime period or for specific
purposes. If a tenant knows that it will be using
A/C 24/7 and the landlord’s charge for this will
be exorbitant, then it’s possible that the capital
cost of installing a tenant-controlled unit might
be worthwhile. It’s also common for a tenant
to wish to add special A/C to a server room
or for a conference room that’s going to be
seeing heavy use for which comfort needs
to be guaranteed.
Whatever the scheme in the building, whether
you want to get the landlord to agree to terms
that he isn’t offering now, or if you want to
negotiate a fixed rate for overtime, it’s
important to get that into the offer right away.
This is a major cost center and the landlord will
not respond well to changing the terms later.
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OTHER FINANCIAL ISSUES
HEAT
In New York City, it’s rare for tenants to be
charged separately for heating their own spaces.
This is one of those instances where landlords
have not yet broken with tradition and generally
provide heat to the entire building and include the
cost of it in the rent. Typically, though, heat isn’t
provided on weekends or evenings. On average,
heat is provided about 55 hours a week. If your
business works longer hours than that, you may
need to come up with an alternative.
Newer buildings with new windows stay
relatively warm, no matter what. The heat loss
in the middle of a 20,000-foot floor is going to
be slow, but even so, by 11:00 at night or 3:00
on a Sunday afternoon, it will probably get
uncomfortable if the temperature outside is low.
The alternative to individual space heaters is to
install a heating coil inside the ductwork of the
air conditioning system that can be wired to a
thermostat or timer to be used only as auxiliary
when the building’s heating system goes off.
This is also a good backup in case the building
experiences a problem with its heating system,
which, if it happens, will invariably be on the
coldest day of the year.
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This is most commonly done at the tenant’s
expense and is not prohibitively expensive.
CLEANING
Most Class A buildings provide a cleaning service.
It can be as often as every day, emptying the
trash cans, dusting, vacuuming, sweeping, and
cleaning the bathrooms. Class B buildings might
or might not offer it, too, but Class C buildings
rarely do. If that’s the case, you will have to find
a cleaning service that suits your needs. If you’re
a large tenant, it might be worthwhile to have a
full-time person whose job it is to keep the pantry
tidy, the refrigerator stocked, and the trash cans
empty. Or you might want a cleaning service to
come in twice a week to dust, sweep, and empty
the trash. There are larger commercial services
that will provide cleaners for this purpose and
there are small entrepreneurs who take on these
jobs as sidelines. Often a cleaning service can be
recommended to you by another tenant in the
building or by the super, which could turn out to
be a good deal because the cleaner will be in the
building anyway. The landlord may also have a
list of recommended cleaners.
GARBAGE
HAULING
In a Class A building you’ll almost never have to
worry about who takes out the trash. The same
is true in most Class B buildings. In almost every
Class C building, the building’s super will remove
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the trash from the freight lobby, but you will have
to pay someone to haul it away.
Unlike residential garbage removal, which is
provided by the city, businesses must pay to have
their garbage removed. Getting this set up isn’t
complicated. The building will have a relationship
with a commercial garbage hauler and the super
will know how to get in touch with them. The
company will estimate the amount of garbage
you have based on the type of business you have,
the amount of space you rent, and the number of
employees you have and come up with a dollar
amount. They will then send you a monthly bill
directly. A medium-sized business renting 20,000
square feet in a Class C building probably won’t
have to deal with this. Any landlord with space
on that scale will probably provide this service.
But if you’re a tenant with 5,000 square feet,
you can expect to spend something like $250
a month for garbage hauling.
SPACE CONDITION AT THE TIME OF POSSESSION
After getting comfortable with all of the
monthly charges, the next thing to examine
is the condition in which the space is going to
be delivered and who’s going to pay for what.
The delivery condition can be anything from a
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raw, demolished space with lath poking through
the plaster to completely finished and move-in
ready. The landlord might give you some cash
to do any work you want, or he might require
that you allocate the money he gives you to
capital improvements such as bathrooms and
air-conditioning. There is no absolute standard
for this and the only parameters are the ones the
two parties bring to the table.
BASE BUILDING
WORK
Sometimes a landlord will do “base building
work” before you move in. This work is the basic
level of services and finishes the landlord plans
to deliver at his expense.
THERE’S NO ABSOLUTE STANDARD,
BASE BUILDING WORK CAN INCLUDE:
»»Making sure the windows open and close
smoothly and are air-tight,
»»Renovating the bathrooms
»»Testing the sprinkler system
»»Adding in a new “Class-E” fire alarm
»»Modernizing the “electrical service”
»»Replacing components in the AC system
»»Redecorating the hallways outside the tenant’s space.
The rule of thumb is to try to imagine things
that aren’t about aesthetics; these will be things
the landlord might have a vested interest in
controlling work quality, or that may be required
to serve more than one tenant’s space.
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If this is work that will affect you and cause
disruption to your business, you will probably
want to make sure it’s done before you move
in. That may not be possible for any number
of reasons, but at the very least a plan should
be in place so that any disruption can be
worked around.
Base building work can also be “structural” work
(as opposed to “nonstructural”). Structural work
is performed on things that keep the building
sound and intact and that underlie a tenant’s
space. For instance, replacing windows would
be structural work, or replacing a “water main”
or the roof. Standard office tenants renting only
a portion of a building are never required to do
structural work.11 The work a tenant performs
is always nonstructural and includes things like
putting up office walls, running new electrical
outlets, and hanging new lights.
A tenant will often use the phrase “Building
Standard” in the Work section to describe how
an element of the building is to be delivered, as
in “Landlord shall renovate the bathrooms to
Building Standard condition.” This is a catchall phrase that’s generally understood to mean
that the landlord will use materials, fixtures,
11
OFFICE TENANTS RENTING A PORTION OF A BUILDING, THAT IS. THE TYPICAL OFFICE LEASE IS KNOWN
AS A “GROSS” OR “MODIFIED GROSS” LEASE. WHEN LEASING AN ENTIRE BUILDING, THE LEASEE MIGHT BE
REQUIRED TO MAINTAIN AND REPAIR THE BUILDING AND PAY ALL OF THE TA XES IN WHAT IS KNOWN AS
A “TRIPLE-NET” (OR NNN) LEASE.
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and workmanship equivalent to all of the other
work that’s been done in the building. It lets
the landlord know that your expectations are
not grandiose but that he can’t skimp and give
you something less than he has done for others.
Each building and landlord is different though
and if you have any question, you should ask
the landlord to show you an example of what he
considers building standard. So while it’s a hard
concept to enforce absolutely, it will give you
some ammunition in the future if a problem arises
in something having to do with the construction.
LANDLORD'S
WORK
The “landlord’s work” is construction he will
do on your behalf. This is generally the portion
of work that affects only your space. Sometimes
this will be work that he was planning to do for
any tenant, or it might be work that he performs
specifically for you.
An example of a typical section in the offer letter
of Landlord’s Work might read:
LANDLORD SHALL, AT ITS SOLE EXPENSE,
PROVIDE THE FOLLOWING:
»»Deliver the space in broom clean condition free of any and all debris.
»»Deliver the sprinkler and heating system in good working order and
condition including repairing or replacing if necessary all operable
radiator valves.
»»Construct six offices, a conference room, a pantry, a reception area, and a
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server room per Tenant’s forthcoming architectural plans
and specifications.
»»Inspect and repair, if necessary, the existing HVAC unit and deliver it
in good working order and condition.
»»Re-configure the existing ductwork as needed to accommodate the new
office configuration.
»»Renovate the bathrooms to building standard condition.
»»Provide and install pendant-hung direct/indirect parabolic fluorescent
lighting throughout the space, per Tenant’s forthcoming architectural
plans and specifications.
»»Provide and install new clear glass double width entry doors.
»»Sand wood floors and seal with two coats of polyurethane sealer.
»»Provide and install perimeter electrical outlets to all areas
per building code.
»»Repair and spackle the ceiling.
»»Patch and paint the entire premises including the ceiling in
Tenant’s choice of color(s).
»»Replace any broken or permanently stained window panes with
brand new glass.
This section should include literally any
construction you want included in the lease.
It can be as specific and detailed as you want
it to be or feel it needs to be. This language
should be incorporated into the lease in some
form. Sometimes it will just be a list in one of the
sections of the lease. If it’s very extensive, then
it might be incorporated into a separate exhibit
generally known as the “Work Letter.”
You’ll notice that the example above includes
some the basics of the condition of the space.
A simple mention that “The space shall be
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“GOOD WORKING ORDER
AND CONDITION”
delivered in ‘broom clean’ condition,” and
“Landlord shall inspect the heating and sprinkler
systems and deliver them in ‘good working order
and condition’” is enough to get the point across.
PAGE NO. 110
is another of those
catch-all concepts that’s
meant to cover problems
that might arise in the
future. I’ve used this
phrase in every offer I’ve
made in my career, but
I’ve never been present
when a landlord actually
inspected the radiator
valves or the sprinkler
heads. The reason to
include it is so that if a
radiator valve is leaky
when the heat comes on in
the fall, the landlord can’t
say it’s your responsibility
to fix it. He was supposed
to have inspected it and
made sure it was okay.
Most landlords won’t try
to pull a fast one in this
respect, but the reason
leases run to 100 pages is
to anticipate and forestall
problems that you hope
won’t arise. This is
just one small example.
TENANT'S WORK
If you’re intending to do some work on the space
yourself, it’s sometimes a good idea to describe
what the work is, either specifically or in general
terms, in a separate section of the offer. Not every
offer will require this section, but there could be
a few reasons for including it; setting yourself
apart from competitive offers or simply getting
the landlord’s approval for something unusual
you intend to do are a couple of possibilities.
If there are multiple offers on a space and you
want to differentiate your company, or if you
believe that the landlord is hesitant to rent the
space to you for some reason, you may want to
let him know how much you’re willing to invest
in the space. Anything you do to improve it
becomes the landlord’s property, and he may like
the fact that you intend to tear out the dropped
ceiling or install a big, glass-walled conference
room. It may get him past the fact that you
only want to rent it for five years instead of the
ten years someone else is offering. Sometimes
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landlords, even large ones, get sentimental about
their buildings and appreciate the fact that you
like it well enough to invest in it, too.
Another reason for including something about the
work you intend to do could be to get approval for
that work as a part of the lease itself. Most leases
stipulate that a tenant can “decorate” a space
without the landlord’s approval. Sometimes
there’s a maximum dollar amount placed on
this work ($25,000 to $50,000 is a common
range) and any work more extensive than that
will require the landlord’s approval.
Most landlords won’t have a problem with any
nonstructural work a tenant wants to do, but if
their approval is required, they’ll have their own
process for reviewing the work and could take
up to a month to review it with a host of people,
such as lawyers, building managers, engineers,
and contractors. They may also require that
the tenant pay these consultant’s fees for their
review. If you request approval of your plans
prior to lease signing, the landlord will have
an incentive to expedite the process and do it
simultaneous to the negotiation.
While we’re on the subject of renovations,
it’s not uncommon for a landlord to include a
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provision that requires a tenant to pay a fee to
him equivalent to a percentage of the cost of
the renovations. This is meant to compensate
him for the time his employees will have to
spend making sure the construction doesn’t
adversely affect the building or for the extra
time they may have to put in cleaning or the
like. The percentage is commonly 6 to 8
percent. Sometimes this can be negotiated
away, but it’s only worth the trouble on a
long-term lease and you think you might
want to make a major renovation.
EXPANSION OPTIONS
It isn’t unusual for a company to want the option
to expand within a building. Asking for this option
won’t derail a negotiation, but it will not be readily
granted either. Landlords consider carefully
before granting an option because, well, it limits
their options, and they’ll often need some kind
of incentive to do so. The best incentive is that
the landlord likes a tenant’s financial profile and
would be happy if that company occupied more
space. Another reason a landlord may grant
an option is that the space the tenant wants
is unattractive for some reason and he thinks
he would have trouble renting it if it became
unoccupied.
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Most options are given on a “right of first offer”
basis, meaning that if the space becomes
available, the landlord must first offer it to the
tenant, who then has a set amount of time to act
on the option or not. Most commonly, a short
amendment to the lease would be negotiated.
In some cases, an option will be prenegotiated
and all the terms of an amendment will be
determined at the time the option is granted.
SUBLET AND ASSIGNMENT
The concept of subletting is a positive thing.
From a tenant’s perspective, the right to sublease
protects him from a predicament in which a space
is no longer suitable for his needs for whatever
reason by allowing him to leave and still fulfill
his obligations. From a landlord’s perspective,
it means that a tenant will be able to fulfill his
obligation regardless of his circumstances. But
in actuality there are some pitfalls in crafting
the sublease clause that need to be addressed
in the lease by the lawyers. In the offer letter it’s
enough to address only the general concepts of
subleasing and assignment.
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SUBLETTING
VS.
ASSIGNING
If you rent an apartment (particularly in
New York City), you’re probably familiar with
the concept of subletting. Assignments are
probably less familiar. The most common
reason to do an assignment is when Tenant 1
is bought by Tenant 2. Or if the corporation
that embodies Tenant 1 is going to cease to
exist, then the new entity must take on the
lease obligations, and the legal means to do
so is an assignment.
The typical sublease language I use in
an offer is:
Tenant and any subtenant or assignee
shall be permitted to sublease or assign
the entire premises or portion thereof with
Landlord's consent not to be unreasonably
withheld or delayed.
Tenant and any subtenant or assignee shall
have the unrestricted right at any time
throughout the term of the lease to sublet
its entire premises or portion thereof, or
assign its lease, without sublessor and
Landlord’s prior consent, to a subsidiary or
affiliated entity.
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The details of this clause will be worked
out during the actual lease negotiation, so
it’s enough to address it in general terms
in the offer letter.
THIS CLAUSE CONTAINS THESE BASIC
CONCEPTS:
»»The landlord must allow the tenant to sublet and can’t
unreasonably withhold his consent to do so.
»»The corollary to that is that if you present a subtenant
the landlord finds reasonably objectionable (i.e., if
the tenant’s business is not in keeping with the nature
of the building, such as rendering animal fat or small
engine repair), he will be able to reject that tenant.
»»You have the right to assign the lease to an affiliated
company (i.e., a purchaser, or simply a new corporation
you have formed to take over a division of your
company that will occupy the same space) without
worrying that the landlord can block the change.
This clause can cause a lot of consternation on
the part of landlords and can easily take up four
or five pages in the actual lease. There are rights
that the landlord may want to include such as the
“right of recapture” and the right to reclaim only
a portion of the space if presented with a request
to sublease. Your lawyer will be able to sort out
the details for you.
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CANCELATION AND DEMOLITION CLAUSES
CANCELATION
Only in rare cases will a landlord allow a tenanttriggered cancelation clause to be built into a lease
without some overriding self-interest on his part.
But sometimes a tenant simply will need to have
the flexibility of canceling the lease at some point
in the future and doesn’t want to have to depend
on the subleasing option in order to relieve his
obligation. If that is the case, the tenant mostly
must be prepared to offer an incentive to the
landlord. The most common incentive is to offer
to pay “unamortized deal-making expenses.”
Deal-making expenses are generally defined as
commissions, free rent, the tenant-improvement
allowance, and, sometimes, legal fees. So if, for
instance, you’ve signed a ten-year lease but
want the option to cancel it after five years, you
might offer to pay half of those expenses as a
cancelation fee. This isn’t usually a small number
and can easily equal the equivalent of six months’
rent. But that might be worth it to you in order to
put the whole lease obligation behind you.
DEMOLITION
If a landlord insists on an early cancelation
provision, it’s usually because he intends to
demolish the building or subject it to a radical
change of use, such as to change it from
commercial to residential use. In that case he
will want a demolition clause.
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The character of the demo clause will depend
mostly on how seriously the landlord intends to
pursue a change to the building. Some landlords
insist on it for the same reason that you can say
that every building in New York is for sale “if
someone makes the right offer.” The landlord
might just like the idea that his options are
open, but the chances are next to nil that he will
be offered the right price or that he will change
the use of the building. A lease that’s signed
without any kind of cancelation provision is fully
enforceable until the end of the term (except
as discussed above). So if you have a ten-year
lease and the landlord decides in the second
year that he wants to demolish the building,
he’s either going to have to buy you out or wait
eight more years.
Getting bought out is the dream of some
small businesses. I know of one small catering
company that was the last-man-standing in a
building a hotel developer wanted to demolish.
The catering company got $3 million and used
the money to build a state-of-the-art commercial
kitchen in one of the outer boroughs, tripling the
size of his business. But that’s a lot like hitting
the lottery. Most landlords subsist by buying and
holding their property and have no intention of
selling or changing its use, and even if they did
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sell, they would have no problem doing so with
all the tenants in place.
But if a landlord does insist on a demo clause, you
should try to get some kind of concession out of
it. It almost never pays to be greedy and insist
on a million-dollar buyout for a $150,000-a-year
lease. But getting six months’ notice and all
your moving expenses paid isn’t unreasonable
(though the landlord may still balk). You can be
as creative as you like and include things like the
cost of printing new stationery, relocating storage
facilities, and the like. In the end the landlord is
either going to be reasonable or not. He may start
by offering 30 days’ notice and no cash payment
and then inch his way up to more notice and a
small cash payment and then further until he
reaches his mental limit. Some will offer nothing
and won’t budge an inch. In that case it’s up to
you to decide what the space is worth to you and
to judge by the look in his eye how serious he is.
HAZARDOUS MATERIALS
It isn’t uncommon to request certification from
the landlord that there are no hazardous materials
present in the space. Removing hazardous
material (known as remediation) is expensive and
onerous, and no tenant wants to find out that it’s
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going to have to move out for eight weeks while
asbestos is removed from a space. Fortunately,
it’s exceedingly rare to find asbestos or any other
hazardous material within a space these days
(unless you’re in a New York City public school,
of course).
To certify that there are no hazardous materials,
a landlord must have what’s known as an ACP5 certificate which is issued by the city after an
inspector has found a given space or building to
be free of a range of specific hazardous materials,
from asbestos to PCBs to other cancer-causing
agents that were once present in many older
manufacturing processes.
As of this writing, an ACP-5 must be obtained to
get any new building permit for construction. So
if you’re going to be responsible for building out a
space, ask the landlord to provide one. If he won’t,
you’ll have to factor the cost of getting one into
your construction costs.
If you’re not doing construction, requesting an
ACP-5 isn’t always necessary. And just because
a landlord can’t or won’t provide one doesn’t
mean there’s a problem. In the majority of cases,
any hazardous materials that might once have
been present have already been removed or
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permanently sealed up in such a way that they’re
no longer a problem. A landlord will sometimes
make a statement such as, “Landlord certifies
that to the best of his knowledge there are no
known hazardous materials present in the space.”
While this doesn’t absolutely protect you from
the hassle of a remediation, it does mean that the
landlord is probably unaware of any problems.
If you suspect there might be a problem and
the landlord won’t commit to an unequivocal
statement, you can get your own private
inspection done prior to lease signing. The
cost of an inspection for an average space isn’t
crushing and your peace of mind might be well
worth it. To be sure, if an inspection detects
a problem, the landlord will be the one to
take care of it. Immediate remediation is in
everyone’s best interests. If the landlord won’t
do the work, you should walk away from the
deal immediately.
DIRECTORY
The building directory is an important part of
any business’s presence. It’s standard practice
to state in the offer, “Landlord to provide
Tenant with its pro-rata share of listings on the
directory located in the building’s lobby.” That
means if you have a full floor of a 20-story
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building, you’ll receive 5 percent of the space
on the directory.
This is sufficient for the majority of companies.
If the structure of your company is out of the
ordinary, though, you may need more space on
the directory than the landlord typically provides.
Perhaps you want to brand the sales division of
the company as a separate entity, or you have a
general counsel who provides legal services to the
company but maintains a separate law practice
and wants to be listed separately. There are a
million possibilities and you’ll want to make sure
that there isn’t a problem from the beginning.
Indeed, the landlord may have a problem
providing additional space on the directory.
Most Class A and B buildings won’t have any
trouble, but in some older Class C buildings,
the directory is limited in size and the number
of lines is literally limited. I’ve never had a deal
fall apart because of this, but sometimes a workaround solution has to be found.
The landlord’s other reason for limiting the
number of listings on the directory is to maintain
control over subletting. In most cases, he has
rented space to one entity and a lot of requests
for additional listings might indicate a problem.
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ACCESS HOURS
While it’s rare in New York City to find a building
that doesn’t provide 24/7 access, it isn’t unheard
of. A landlord would seem to be cutting his own
throat to limit the hours a business can operate
in its office space, but the practice does still
survive. Off the top of my head, I can think of
only three buildings that close at night and on
the weekends. This is sometimes because the
passenger elevators are still manually operated,
so an operator must be present to make them
work, and sometimes it’s just because the
landlord thinks it’s a good idea. These buildings
do generally offer a lower rent to compensate for
the loss of accessibility, and perhaps on deeper
reflection, it might be worth it to you to give up
some flexibility in exchange for a cheaper rent.
Just make sure the building is open when you
need it to be.
FINANCIAL INFORMATION AND
SECURITY DEPOSIT
The final section of the offer always discusses the
security deposit. In the initial offer, the amount of
security being discussed is almost always “to be
determined.” Never offer an amount of security
up- front; different landlords have different ideas
about how much security will be required.
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It stands to reason that a landlord will want to
know that you have a history of paying the rent
and that you’re likely to be able to continue to
do so. To that end, he’ll ask you to provide some
information about the financial state of your
business. He also needs to assess your credit.
By credit I don’t mean it in exactly the same way
a bank would look at your personal finances, but
he’ll want to know in general how many years the
company has been in business, its annual profit
or loss, and its current obligations and assets. He
may run a D & B12 on your company.
Credit turns out to be a surprisingly subjective
thing that landlords try to make decisions
about as objectively as possible. Even if you’re a
multinational corporation with billions in annual
revenue, the judgment is still based on the
intersection of your finances and the landlord’s
risk. A person reading this book is most likely not
the owner of a multinational corporation, but let’s
say you’re a start-up that just got funding from
investors to the tune of $3 million. That sounds
like a lot of money and any landlord should be
glad to have you, right? But maybe last year, your
second in business, you spent $1.5 million more
than you earned. A landlord will look at that $3
million, divide it by $1.5 million, and judge that
12
D & B STANDS FOR DUN AND BR ADSTREET, WHICH IS THE BUSINESS CREDIT REPORTING AGENCY.
THEIR WEBSITE IS W W W.DANDB.COM
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your business will survive for two years. He knows
he can’t count on you getting more funding and
will be very unimaginative with regard to your
revenue rising. He may want an above-average
security deposit, and he most certainly won’t sign
a ten-year lease. (By the same token, you may not
want to sign a long lease because even you can’t
predict what’s going to happen after three years.)
At the same time, every company has a story to
tell that isn’t necessarily summed up by numbers
on a spreadsheet, and most landlords will listen to
that story and allow themselves to be influenced
by it. I’ve often included a narrative section when
presenting a financial picture. The company
might be run by an experienced operator with a
proven track record who’s starting a new venture.
Maybe a new technology has created a business
opportunity that you’re uniquely poised to exploit.
Maybe your revenue numbers for this year are
going to explode and you can show the contracts
to prove it. In any event, a narrative will help you
round out the picture of your company. It may
also help to provide some kind of marketing
material, such as biographies of the founders, key
executives, or investors. A company website may
provide all this material in one smart package. If
your company has a Wikipedia entry or there
have been any positive stories about it in the
media, share them.
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All this information can be provided online, but
there are still some old-fashioned owners who
would rather have a hard copy, so be ready to
provide it in whatever form they want it.
Ideally, from a landlord’s perspective, the
financial information you provide would be two
to three years’ worth of statements that have
been prepared by an accountant. Certified
financial statements are expensive (easily costing
into the five figures) and if your business isn’t
legally bound to have certified statements, you
probably won’t do it. Most landlords understand
this; federal income tax returns are a generally
acceptable alternative.
Sometimes last year’s statements or returns
don’t tell the whole story. I work with a lot of
companies that are newly formed or backed by
venture capital that have a lot of cash in the bank
but expenses that exceed income. In that case,
this year’s year-to-date income statement and
a copy of the bank statement will help show a
positive trend and a healthy balance sheet.
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A LANDLORD'S FIRST IMPRESSION IS
FORMED BY THREE NUMBERS:
»»Gross revenue
»»Net profit
»»Current rent being paid.
The top line number, the gross revenue, always
jumps off the page. Whether it’s six, seven,
eight, or nine figures, it gives an indication of the
scale of your business. Obviously he hopes your
company is also highly profitable. He also will be
happy if the rent you currently pay is a substantial
percentage of the rent you’re planning to pay him. If
you currently pay $1,000 per month and his space
costs $20,000 per month, he’s going to see that
as a red flag needing further investigation. If the
statements show profits and assets growing year
after year and the rent you’re currently paying is,
for example, 60 percent of the rent you’re seeking
to pay, he’ll interpret the story as fairly simple:
you’re a growing company in need of more space.
Profitability makes everyone feel good. A lack
of profit, though, doesn’t automatically tell the
opposite story; it just requires further explanation.
We’ve all heard about companies like Facebook
and Amazon that have revenue in the hundreds of
millions but aren’t yet profitable. Your company
may not be worth that much, but your story may
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be similar: a start-up that’s investing heavily in
new technology. It may have a different arc, but
one that is just as understandable. For instance,
you may have recently changed your business
model to adapt to new conditions. I recently
worked with one company that showed a
50-percent decline in gross revenue year-overyear, but on closer examination, it turned out that
its net profit remained the same because it had
changed its production strategy, allowing it to use
less contract labor while raising the per-customer
profit. Someone who understands the various
paths a business can take and can present a clear
and compelling story to the landlord is vital to
keep the landlord from wanting an outrageous
amount of security or, worse yet, rejecting your
company entirely.
Publicly traded companies with assets in the
hundreds of millions and nice fat profits might
convince a landlord to rent space without a cash
deposit. If you’re a division of a larger corporation
and that corporation is willing to guarantee the
rent, the landlord might not require a deposit.
Otherwise you should expect to have to put
up between two months’ and one year’s worth
of rent for a security deposit, with three or four
months being an average amount.
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FACTORS THAT A LANDLORD USES TO CALCULATE
SUFFICIENT SECURITY:
»»The health of your business, which includes the length of time
in business and profitability.
»»The costs involved in making the deal, which include free rent,
commissions, and legal fees.
»»The amount of time you will occupy the space.
»»His construction costs.
»»The overall design of the space you’re planning to create and
his assessment of how much of your build-out can be reused
in the future.
All of these points will be measured in his thinking.
A landlord may sit down with a spreadsheet and
analyze them, or he might have some kind of
personal algebra that makes sense to him. The
best-case scenario for you is that he believes you
have a strong business that’s unlikely to fail and
will completely fulfill the lease obligation. That
starts his thought processes off on the right foot.
But things happen even to the best businesses:
owners die, industries change, and economies
falter. Adding to that, the landlord might spend
$35 per square foot building the space for you as
well as giving you some free rent. If you do leave
the space early, he’s going to have to spend more
on commissions and legal fees finding the next
tenant. He would much rather you pay for that
via the security deposit than him.
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THE
BURN DOWN
Landlords who demand a higher than average
security can often be persuaded to “burn down”
the security, meaning they’ll give back a portion
of the deposit at some interval after the start
of the lease. For instance, if they demanded six
months’ security for a five-year lease because
you didn’t have a lot of time in business, as you
establish a track record of timely payments, it’s
reasonable to ask them to return some of it. In this
instance you might ask them to return a month
of security at the end of each year so that in the
final year, they’re holding only two months. They
may opt to return the money to you in cash, but
more often they’ll issue a credit on your rent bill
so that you get one month free each year. Though
it will increase your up-front costs, the net effect
is balanced, and this is a common and reasonable
solution that addresses a real concern.
LETTERS OF
CREDIT
While it’s most common to pay a security deposit
in cash, it’s also common for a landlord to accept
a “standby letter of credit” (LC) in its place. This
is a letter issued by a bank that gives a landlord
all the same rights he would have as if he held
cash, only he has to apply to the bank in order
to get the actual cash. The LC is a two-to-tenpage document that’s negotiated separately
from the lease and has to be agreed upon by all
three parties: the landlord, tenant, and bank. It
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usually mirrors the language in the lease as to
what constitutes a default by the tenant and
under what circumstances the landlord can draw
the cash. For providing this service, a bank will
typically charge 1 percent per year of the face
value of the letter ($1,000 per $100,000, for
example). A letter of credit is different from a
loan or a line of credit, though; the letter must
be secured by cash or a cash equivalent. Most
commonly, a company will deposit cash into a CD
held by the bank.
What difference does this make to you, then, if
the cash is tied up by a bank or the landlord? As
always, there are several factors to consider.
If the prevailing interest rates remain what they
are at this writing (less than half of a percent for a
one-year CD), it’s going to cost you money to use
an LC.13 Sometimes a company’s asset manager
or CFO just feels offended by the notion of cash
being held by a landlord and would rather it be
held in a bank account in the company’s name,
even if that means some extra expense. But if
the interest rates rise again you would be earning
money on otherwise fallow cash.
Sometimes people have something else of
value other than cash that a bank will accept
13
COMMERCIAL LANDLORDS GENER ALLY DON’T PAY INTEREST ON SECURITY DEPOSITS. AS WITH
EVERYTHING, THIS CAN BE NEGOTIATED, BUT UNLESS CASH ACCOUNT INTEREST R ATES RISE ABOVE
1 PERCENT, IT’S NOT WORTH THE TROUBLE.
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but a landlord won’t. I once had a customer
who had a fully vested whole life insurance
policy valued at approximately the same
amount as the security deposit. Since the
policy could be redeemed for cash at any time,
the bank accepted it as collateral and issued
the LC. That was an unusual but imaginative use
of an otherwise fallow asset.
Since it takes at least a couple of weeks to
complete all the paperwork for a letter of credit,
it’s also not unusual for a company to give the
landlord a cash deposit with the understanding
that it will be replaced at some later date by the
letter of credit. This means you have to have
enough liquid assets to float the equivalent of two
security deposits for a short time, but it might
make closing the deal easier.
GUARANTEES, GOOD GUY AND PERSONAL
The last piece of security most landlords
ask for is some sort of guarantee from a
principal of the firm, either a “good guy”
or a personal guarantee.
PERSONAL
GUARANTEE
A personal guarantee would be the same as
forfeiting the protection afforded by forming
a corporation or LLC. Most business owners
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won’t personally guarantee anything, much less
an obligation that could easily run to millions of
dollars. Most landlords won’t ask for one, but if
they do, you wouldn’t be alone in refusing.
GOOD GUY
GUARANTEE
A good guy guarantee is a very different
animal. It’s a limited personal guarantee that
expires when the company stops occupying
the space. Its purpose is to allow the landlord to
avoid the expense and brain damage of forcing
an eviction through a court order if a tenant
stops paying rent. That saves time and money
for everyone.
The good guy guarantee takes a business owner’s
aversion to a personal guarantee into account.
What it means is that someone becomes
personally liable for the rent while the company
is in possession of the space. Assuming that
person has a close personal relationship with the
company, i.e., a founder, owner, CEO, or president,
and that person’s interests and the company’s
interests are one and the same, there’s no issue.
If for some reason the company can’t or won’t
meet its rent obligation anymore, it moves out,
returns the keys to the landlord, and that person’s
personal obligation expires.
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The good guy is only meant to act as an incentive
to leave if the tenant stops paying the rent. But
even if the tenant has moved out, the landlord
can still sue the company for the rent owed for
the remainder of the lease if he chooses. Further,
depending on the negotiated terms of the good
guy, there may be certain conditions that must
be met before the guarantee can expire (for
example, the space must be returned to its
original condition, or there might be a set notice
period before the move out). Some tenants form
the impression that it’s like a get-out-of-jail-free
card, but generally it isn’t.
OUTLIER TERMS
Some other items may be discussed in offers
occasionally, some only rarely. These outliers
might include allowing dogs, or bicycles, or
satellite dishes, or a flag on the building, or a
sign in the window, or the provision of a proper
certificate of occupancy. There are many
possibilities and generally speaking it’s best to
include it in the term sheet rather than waiting
to bring it up later during the lease negotiation.
That’s the end of the offer. All that’s left to do
is to pack it up and ship it off to the landlord,
usually with a reminder at the bottom that the
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offer is nonbinding. If you’re using a broker, the
brokerage will put a statement at the bottom
that says that the offer is subject to the landlord
paying a commission per a separate agreement.
Sometimes you’ll want to send financial
statements right away, sometimes you won’t,
depending on the circumstances. Most often,
you’ll wait until the landlord has had a chance to
look over the offer and requests the financials
later.
If you’ve positioned the offer correctly, you’ll
have made a few requests that the landlord
can’t abide, but that are close enough to be
intriguing. If the landlord is a professional or is
represented by a professional, he’ll understand
that every term in the offer is up for negotiation,
although I have had experiences in which a
landlord has appeared to be genuinely offended
when a tenant has tried to talk him into or out
of something. But if what the landlord is offering
is reasonably close to what you want, and if you
offer something that’s reasonably close to what
he wants, a reasonable negotiation will ensue.
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SECT. 4 NEGOTIATING THE TERMS AND THE LEASE
1.0 NEGOTIATING THE TERM SHEET
2.0 THE LEASE
3.0 A MAP OF THE LEASE
4.0 CHOOSING A LAWYER
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1. NEGOTIATING
THE TERM SHEET
I’ve read the book Getting to Yes by Roger Fisher
and William L. Ury and I’ve read books by
Donald Trump, and I’m much more in the Getting
to Yes camp when it comes to negotiation. The
Donald’s strategy, where his strength always lies,
is in being ready to walk away. It’s true that the
willingness to walk away is where the ultimate
power in any negotiation resides. It allows you to
push and push until you get the result you want,
and to drop out when you don’t. If that’s truly
the case for you, then by all means play it that
way. For a tenant, the best way to accomplish
this circumstance is to have found multiple
spaces that will work and to be negotiating on
them simultaneously. If, however, your options
are more limited, you have to feel how hard to
push and when to fall back. You need to know the
leverage points of the opposition and how, when,
and whether to exploit them. To be sure, they’ll
be doing the same to you. I believe the interests
of both parties must be served in one way or
another in order to successfully conclude a deal.
Tenants must always assess their own relative
strengths and weaknesses, as well as those of the
“opposing” side. As of this writing, landlords have
the upper hand in New York City. But this doesn’t
mean that every landlord is going to jettison any
deal that doesn’t instantly meet his standards.
Empty space is always a landlord’s enemy, and
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most landlords would rather have their spaces
occupied than not.
Once the offer has been presented, I usually call
right away on the pretext of making sure it’s been
received, but really I want to gauge informally
how the terms are going over based on a first
impression, and unguarded reactions can be very
instructive.
The time a landlord takes to respond will vary.
Anywhere from one to five days is typical.
Sometimes a landlord responds in full to every
point in your offer, and sometimes he starts with
only the points that are most important to him
like rent, term, and landlord’s work. Sometimes
a landlord will call up and ask for a clarification
of some point in the offer he doesn’t understand.
SOME COMMON NEXT STEPS ARE:
»»To ask for financials
»»To request a meeting at the space to go over work
»»To demand agreement on some single point before any progress can be made on the rest of the offer.
Whatever the next step ends up being, engagement
and discussion are good things. If you’ve offered
something so egregiously different from what he
wants, he simply won’t respond, and you may have
to recalibrate the offer.
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This negotiation will take two to three weeks on
average, but it can take anywhere from a week to
several months. Renting this space is probably a
significant investment for you, and it’s a significant
asset for the landlord, so everybody has to get
comfortable and settle into the relationship. The
number of times back and forth averages three or
four, but it can be more, again depending on many
circumstances. Sometimes everything has to be
written down and presented formally, sometimes
an understanding can be reached in conversation
and the final understanding memorialized later.
It’s important to read every line of every iteration
of the term sheet. Agents are especially good at
making seemingly innocuous changes that have
a big impact. I take special care to compare the
offers line by line to look for any items I thought
were agreed upon but have changed or reverted
back to the landlord’s original language. This
could mean an oversight on his part, or it could
mean the landlord has decided not to agree to it
anymore. Take nothing for granted; every point
has to be brought into the open.
For instance, in an offer I once wrote, the
electricity was to be submetered. The landlord
kept inserting the phrase “per electrical rider” in
the response. I didn’t ask about this for the first
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couple of rounds of negotiation, but when I finally
did, it turned out that the landlord used a very
convoluted means of charging for electricity. It
included a markup of something like 25 percent
on electricity used by the tenant. The landlord
was probably hoping the tenant wouldn’t read
the electrical rider closely (not an uncommon
occurrence) and wouldn’t notice until the first
electric bill arrived. This killed the deal and it
wasted everybody’s time.
2. THE LEASE
At some point all of the business terms will be
agreed to and the landlord will agree to “go to
lease.” This is a happy moment and marks
the beginning of the next stage of negotiation.
Typically the landlord prepares the lease. In the
landlords’ perfect world, all rights would accrue
to them, they would have no obligations, and
they would be able to dictate all aspects of how
a space is used and paid for at their discretion.
In your perfect world, the opposite would be
true. The lease must reconcile those visions of
perfection into a balanced relationship.
Residential space in New York City is strictly
governed and regulated, but commercial space
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isn’t. Over the past century, the city and state
governments have reacted to the worst excesses
a popular, overcrowded city has wrought by
passing a detailed set of laws and issuing
innumerable regulations. For better or worse,
it’s a system designed to weigh in favor of the
tenant, who is presumed to be the weaker party
and in need of assistance to level the playing field.
The commercial tenant has no such system of
protections. The entire legal relationship between
the parties is defined by the lease document and
there are no governmental protections a tenant
can call on if there’s a dispute with the landlord,
which is why the lease document can run to 100
tedious, legalese-filled pages.14
THE
PREPRINTED
FORM
14
The typical lease generally has two parts: the
preprinted form (also known as the boilerplate)
and the Rider. The preprinted form is most
often the one issued by the Real Estate Board
of New York, and contains the main outlines
of the relationship. It reads like it was created
by a committee consisting mostly of landlords,
with a few brokers chiming in so that the rights
of tenants weren’t completely ignored, which
is exactly what it is. The form gets updated
every few years—as of this writing the latest
version was updated in 2004—but there are
still some versions out there with a lot of archaic
SO LONG AND TEDIOUS, IN FACT, THAT I RECOMMEND SEVER AL BOOKS IN THE BIBLIOGR APHY
( W W W.GETTINGTOLEASE.COM) THAT WERE WRITTEN BY INDIVIDUALS MUCH MORE COMPETENT
THAN I TO DESCRIBE EACH CLAUSE IN THE LEASE, HOW TO INTERPRET IT, AND WHAT YOU CAN
REASONABLY EXPECT TO ACHIEVE THROUGH NEGOTIATION.
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provisions that are out of date and probably
unenforceable.15 Some landlords have taken the
time and trouble to have the preprinted form
retyped into an editable document. Even though
it may be a lot easier on the eyes (the type on
the preprinted form is small enough to give
anybody a headache), many lawyers don’t like
this. Experienced attorneys know exactly what
to expect on the preprinted form and they can
zoom their attention to any areas of concern.
With a retyped document, they have to read
the whole thing carefully in order to discern any
subtle changes that may have been made.
THE
RIDER
15
The second part of the document is the Rider.
This is where the specifics of the business
relationship are defined, the monetary aspects
detailed, and any other concerns of either party
addressed. All the business terms as previously
described in the offer letter are included here:
the rent, free rent, escalations, anything having
to do with money. Also included are issues like
late payment charges, the definition of “default,”
what happens in the event of a default by either
party, the demolition clause if there is one,
charges for the freight elevator, the right to quiet
enjoyment, the security deposit, etc.
FOR INSTANCE, IN OLDER VERSIONS OF THIS DOCUMENT, THE LANDLORD IS ONLY OBLIGATED TO
PROVIDE ELEVATOR SERVICE DURING REGULAR BUSINESS HOURS, WHICH IS A LEFTOVER FROM THE DAYS
OF MANUALLY OPER ATED ELEVATORS. ANY BUILDING WITH AUTOMATIC PASSENGER ELEVATOR SERVICE
WILL PROVIDE IT 24/7.
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Some landlords will start out by establishing
a very tough tone in the Rider. Some are oldtimers who are ready to be swayed by reason
but don’t believe they should give up anything
without being asked. Others may actually
believe they’re entitled to accrue all rights to
themselves and will only bend when forced to do
so. This could lead to a contentious negotiation
period, but not necessarily to a bad outcome. It
will certainly be expensive because of the hours
the lawyers will spend wrangling. Again, most
professional landlords will offer something
reasonable because they’ve already spent a lot
of money drafting the lease document and don’t
want to spend a lot more negotiating issues
they’re probably going to give in on anyway.
Some landlords will offer a “prenegotiated”
lease in which a tenant’s concerns are largely
acknowledged and a lawyer will have only
minimal comments to make.
When the lease first arrives, do a quick review to
make sure the terms match the final term sheet.
If there are any terms that don’t match up, raise
them with the landlord immediately so they don’t
become set.
When I first receive a lease, I generally review
it not only for the accuracy of the agreed-upon
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terms but also for some other standard businessrelated issues that aren’t typically addressed in
the term sheet. By no means is this a complete
list, but here are a few examples:
TYPICAL INSURANCE
PROVISION
All leases require that the tenant carry liability
insurance and to provide insurance certificates
naming certain parties as “additional insured.”
Some leases contain the provision that the lease
is not in effect until these certificates have been
delivered, so be prepared to provide them along
with the signed lease. Most businesses already
carry sufficient insurance, but it’s a good idea
to send the insurance section of the lease to
your insurance agent when the lease is being
negotiated to find out if you need to change
anything about your coverage and learn if there
are any new costs. If there’s anything about the
insurance section that’s out of the ordinary, the
insurance agent will probably pick up on that.
Most leases also require that the business carry
some form of renter’s insurance to cover their
contents. A landlord will carry a policy that covers
the major systems of a building, but it will be the
tenant’s responsibility to repair any damage to
the interior of the space. This coverage would
be for paint, carpet, lighting fixtures, bathrooms
(if they’re contained within the space), furniture,
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data wiring, and computers; basically, you need
insurance to cover anything you can see and a
few things you can’t.
HOLDOVER
I described this a little above (page 26) as
something to review in your current lease if you
have one and think you might bump up against
the termination date of that lease. The holdover
provision in a lease creates an incentive to leave
a space at the end of the lease term by increasing
the rent due by some onerous amount. In other
words, it could cost you between one and a
half and three times your current rent to stay
any extra amount of time. Nobody in their right
mind would pay that, so it really gives you an
incentive to find a new situation or to renegotiate
your lease. In reality, most landlords will give a
little and allow a tenant to stay an extra month
in cases where there’s a legitimate problem or
even a well-intentioned mistake. But my advice
is, don’t put yourself in the position of depending
on a landlord’s goodwill.
Most leases are written with the provision that
holdover rent becomes three times (3x) the
current rent, but it’s almost always negotiated
down to one and a half times (1.5x).
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PERCENTAGE OF
OCCUPPANCY
The percentage of a building a tenant occupies
determines a number of charges to the tenant
and should be verified by dividing the rentable
size of the space by the total square footage of
the building. If the lease reads that you occupy
9.481 percent of the building, your calculations
should be roughly similar. They may not match
exactly, but don’t get hung up on differences less
than a couple of tenths of a point.
Make sure that any and all escalations that are
pegged to a base year are pegged to the same
base year. I’ve had the experience where the
landlord had included a base year for the fuel
escalation was several years prior to the current
year. This may have been inadvertent, but in any
case, they should match.
Most of the time, the broker will make comments
on these additional items to your lawyer rather
than directly back to the landlord for reasons that
are outlined below.
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3. A MAP OF THE LEASE
As I’ve said, I’m not a lawyer and I can’t give legal
advice. But I think you’ll find it useful to learn
about the different sections of a lease, if for no
other reason than it will inform you about what’s
important to the people who drafted it.
A LEASE CAN BE BROKEN DOWN INTO THE
FOLLOWING GENERAL THOUGHT CATEGORIES:
»»What services and representations the landlord is expected
to provide.
»»The financial obligations of the tenant under different
circumstances, e.g. under normal circumstances, or if the tenant
declares bankruptcy, or if the tenant falls behind on rent, etc.
»»How the landlord can seek remedy for a tenant’s failure to
do something.
»»What the landlord is obligated to pay for, particularly at the
beginning of the lease for things like construction costs and
free rent.
»»What services the tenant is obligated to provide for itself such as exterminating, trash hauling, etc.
»»How the tenant uses the space and the general rules governing
the tenant’s behavior (noise or odors, where is trash left, use of
the common areas, etc.)
»»What insurance the Tenant is expected to have.
»»What happens when governmental bodies impact the landlord
and/or the tenant.
»»The landlord has relationships with bankers and will occasionally
require the tenant to take some action such as providing a
document of some kind.
»»Some sections define words and clarify legal concepts.
»»Miscellaneous provisions such as options, where are bills and
notices sent, waiver of trial by jury and many other smaller matters.
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As an example, I read through a lease I executed
recently for a typical landlord in a typical midtown
building for a five year lease for a 2,500 foot
space. There were a total of 74 sections.
SECTIONS OF A TYPICAL LEASE
»»13 sections were devoted the landlord’s services and representations.
»»16 sections were devoted to various tenant obligations.
»»5 sections described what happens when things go wrong.
»»3 sections described the landlord’s obligations to pay for
certain things.
»»3 sections about tenant-provided services.
»»A long section about subleasing and assignment.
»»A long section about insurance.
»»3 sections about the impact of government regulations.
»»5 sections about building rules and regulations.
»»3 sections about the landlord’s relationship to bankers and others.
»»13 sections about contract law and definitions.
»»The rest were miscellaneous matters.
From this, you get a flavor of what to expect
when reading a lease and why in the next section,
I recommend using an experienced lawyer.
4. CHOOSING A LAWYER
In almost all instances, it’s far and away preferable
to use a lawyer with a good amount of real
estate experience, specifically experience with
New York City leases, to review the lease rather
than to trust your own common sense or a lawyer
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who may only have experience in other forms of
contractual law.
I once dealt with the executives of a company who
tried to save money on a lawyer and negotiate the
lease themselves. They were a technology firm
subletting for 18 months and the sublandlord
happened to be a law firm. Most leases contain
legal terms that may or may not be defined in
the lease itself but that entail specific obligations.
A lawyer knows what these terms mean, the
layperson may not. Not having experience with
leases, this company wasted a lot of time on less
important technicalities, while some important
concepts weren’t addressed. The biggest
problem ensued when, after a couple of weeks
of negotiation, the tenant woke up to the fact
that they were in over their heads and showed
the lease to a lawyer. This particular lawyer tried
to change some deal points that were already
negotiated and ended up almost sinking the
whole deal. It eventually got done, but only after
a lot of head-banging and unnecessary difficulty.
The best real estate leasing lawyers have a lot
of experience with these documents. As I said,
they can zoom their attention to the areas of
real concern because they know what to expect.
Some will make ten comments on the preprinted
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form and twenty on the Rider. Some will make
half or double or triple that. Their efficacy and
efficiency are affected both by the tone of the
lease and the stakes involved. Nobody should
sign a lease with onerous provisions. For a small
business, a lease obligation is a very big deal;
even if the actual dollar amount is relatively small,
it can be a sink-or-swim amount of money to that
business. A lawyer should know which battles to
choose. A one-year lease and a ten-year lease
are very different animals, and the same level of
attention to detail on one may not be appropriate
for the other.
Finding a “deal-making” lawyer is key to this
stage of the negotiation. He or she shouldn’t try
to re-negotiate business terms that have already
been settled without consulting you or the broker
to learn the history of that particular deal point.
Reopening a negotiation on a point the landlord
thinks is already settled can scuttle a deal that
could otherwise be made.
A lawyer will first read the lease and then have a
meeting with you to find out what’s important to
you and to raise red flags where he or she sees
areas of concern. Sometimes the broker is called
into this meeting, sometimes not.
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I’ve seen the best outcomes when the tenant’s
lawyer calls the landlord’s lawyer immediately
after this review to work out a framework for
going forward. Generally, the lawyers will speak
frankly to one another and determine where their
respective clients will bend and where they won’t.
If your lawyer is trustworthy and experienced, he
or she won’t give away the farm, and this meeting
is almost always a time-saving (and hence a
billable-hour saving) experience.
After that, your lawyer should form a group of
comments, including any made by the broker,
which can be transmitted to the landlord all in
one block rather than in trickles. The psychology
of this is that a lot of disparate contact makes
the other party believe there’s a never-ending
stream of changes coming, whereas sending
them all in one group makes the process seem
more manageable.
Sometimes the landlord has an in-house lawyer,
sometimes he’ll be using a hired gun, sometimes
he’ll want to negotiate directly. I’ve had good
and bad experiences with all of these situations.
There’s no such thing as a standard negotiation;
it’s always a unique interplay of personalities
that requires some amount of flexibility and a
good amount of problem-solving ability.
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Sometimes your lawyer will make 30 comments
and the landlord will refuse to accept 20 of them.
Sometimes they’ll accept all of them. Sometimes
one party will get hung up on a particular point
that has to be worked through before anything
else can be accomplished. The broker’s job at this
point is mostly to keep the negotiation moving
forward. At any time, the broker can be called in
to clarify or mediate a particular point. And even
though brokers are forbidden by law to give legal
advice, there may be issues with which a broker
has experience and it will be appropriate for him
or her to comment on them.
In any event, the broker shouldn’t be calling your
lawyer willy-nilly. You may want them to be in
direct contact with one another and that’s fine,
too. Just remember that most lawyers charge by
the quarter hour for their time and will be logging
every phone call, regardless of whether it’s from
you or from the broker.
The lawyers may draft several iterations of the
lease before settling on a final draft. Hopefully it
won’t be too long or expensive a process. Keep in
mind that it will be money well spent.
When the final draft arrives, you’ll be asked
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to sign it first. There may be up to six copies
to sign (four is the average). Sometimes the
landlord wants your initials on every single page,
sometimes you’ll have to have your signature
witnessed or notarized. You’ll be asked to supply
a bank or cashier’s check for the first month’s
rent and the security deposit (or documents
for whatever the security arrangement is).
And, most commonly, you’ll have to deliver a
certificate of insurance, too.
All the copies are then sent to the landlord for
countersignature. I wish I could say that once
you’ve signed the lease and delivered checks
you’re done, and without a doubt the space is
yours, but alas, I can’t. The law states that until
the landlord signs and delivers a copy of the lease
back to you, it technically isn’t binding. I once had
a lease returned to me unsigned by the landlord,
and almost every long-time broker has had the
same experience at least once. It’s exceedingly
rare, to be sure. That a landlord would go through
all the hassle and expense of a negotiation and
then walk away is incomprehensible, but it could
happen. In my case, the landlord had the decency
to return the lease and the checks within a day.
But I’ve also had the experience of landlords not
countersigning and delivering the lease until after
the tenant has moved in. If the landlord is acting
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in every sense as if he considers the space to be
yours, don’t get too anxious about the absence of
a countersigned lease.
If the deal is set, you should begin to get phone
calls from the landlord’s representatives—the
superintendant, the accounting department,
construction personnel, and such—and you’ll
begin to ramp up your own preparations for
moving, whatever they may be.
CONGRATULATIONS! YOU’VE ACQUIRED
YOUR NEW SPACE. I HOPE YOU FOUND
THIS BOOK HELPFUL. IN THE RESOURCES
SECTION OF GETTINGTOLEASE.COM
YOU’LL FIND SOME MORE IN-DEPTH
INFORMATION ABOUT THE LEASING
PROCESS THAT’S SOMEWHAT INCIDENTAL
BUT THAT YOU MAY FIND INTERESTING
OR A GOOD REFERENCE.
PAGE NO. 154
GETTING TO LEASE
GLOSSARY
PAGE NO. 155
GETTING TO LEASE
GLOSSARY
AS-IS CONDITION
The condition of a space at the time a lease is consumated. Typically
the tenant agrees to accept the space with no improvements or
warranty whatsoever.
ABATEMENT PERIOD
Any time that a tenant is allowed to occupy an office without owing
rent. See also "Free Rent."
ABOVE BUILDING STANDARD
Upgraded finishes to the construction of a given space that go beyond
a landlord's typical construction
ABSORPTION RATE
The net change in available space for lease between two dates.
ACM
Acronym for Asbestos Containing Materials.
ACP-5
A form issued by the New York City Department of Environmental
Protection that certfies that a given space is free from certain
hazardous materials such as asbestos.
ADA
Acronym for Americans With Disabilities Act passed by Congress
in 1994 with the intent to provide persons with disabilities
accommodations and access equal to or similar to that of the general
public. ADDITIONAL RENT Any amounts due under a lease that are in addition to base rent.
ADD-ON FACTOR
The ratio of common area to "usable" space that is added on to all
offices in a building. See also "core factor" and "loss factor."
ADJUSTED BASIS
The original cost basis of a property plus capital improvements, less
total accumulated costs.
ADS
Acronym for "annual debt service" which is the total amount of
principal and interest to be paid each year to satisfy the obligations
of a loan contract or mortgage.
AGENCY Any relationship in which one party (agent) acts for or represents
another (principal) under the authority of the latter. See also
"exclusive agency" and "exclusive right to sell."
AIR-COOLED
A type of air conditioning system that uses fresh air to cool an air
conditioning system, (as opposed to using water to cool it) usually
vented in and out from a window that is part of a given space. This
is most common in tenant controlled air conditioning schemes. See
also "water cooled."
ALLOWANCE A set dollar amount provided by the Landlord under a lease to be
used by the Tenant for a specific purpose.
AMERICANS WITH DISABILITY
ACT (ADA)
A law passed in 1994 with the intent to provide persons with
disabilities accommodations and access equal to or similar to that of
the general public. AMORTIZATION Payment of debt in regular, periodic installments of principal and
interest, so that the amount owed reduces gradually over time. May
also be used in a lease where the landlord incurs costs for additional
tenant improvements which are effectively treated as a debt and
repaid by tenant over the term of the lease. ANNUAL DEBT SERVICE (ADS)
The total amount of principal and interest to be paid each year to
satisfy the obligations of a loan contract or mortgage.
ANNUAL PERCENTAGE RATE (APR)
The true annual interest rate payable for a loan in one year.
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GLOSSARY
ANNUITY
Regular fixed payments or receipts over a designated period of time.
APPRECIATION
An asset’s increase in value.
ASSESSED VALUE
The value of real property established by the tax assessor for the
purpose of levying real real estate taxes.
ASSESSMENT
A fee imposed on property, usually to pay for public improvements
such as water, sewers, streets, improvement districts, etc.
ASSIGNMENT
A transfer of interest in a leased property from one entity to another
whereby the original lessee transfers all of its interest to a new party.
ATTORN
To agree to recognize a new owner of a property and to pay him/her
rent.
ATTORNMENT
A letter from the grantor to a tenant, stating that a property has been
sold, and directing rent to be paid to the grantee (buyer). See also
“Attorn”.
AVERAGE ANNUAL EFFECTIVE
RENT
The tenant’s total effective rent divided by the lease term.
BALLOON PAYMENT
The final payment of the balance due on a partially amortized loan.
BASE BUILDING WORK
Improvements to a space that the landlord agrees to do in addition
to any "tenant improvement allowance." Typical base building
work might be new bathrooms, a new HVAC package unit and new
windows.
BASE RENT
The minimum rent due to the landlord. Typically, it is a fixed amount.
This is a face, quoted, contract amount of periodic rent. The annual
base rate is the amount upon which escalations are calculated.
BASE YEAR
The year upon which future increases or escalations are based.
The actual costs in the base year are compared to future years to
calculate the increases
BASIS
The total amount paid for a property, including equity capital and
the amount of debt incurred before tax.
BELOW-GRADE
Any structure or a portion of a structure located underground or
below the surface grade of the surrounding land.
BRITISH THERMAL UNIT (BTU)
A measurement of the amount of energy it takes to change the
temperature in a space. For instance, an air conditioner might
supply 12,000 BTUs which is a number that can be used to calculate
how much space that air conditioner can efficiently cool. See also
"BTU."
BROOM CLEAN
Describes the cleanliness that a space is to delivered to a new tenant
(or sometimes new owner) wherein the expectation is that it is to be
reasonably clean and free of debris but not immaculate or spotless.
BTU
Acronym for "British Thermal Unit." A measurement of the amount
of energy it takes to change the temperature in a space. For instance,
an air conditioner might supply 12,000 BTUs which is a number that
can be used to calculate how much space that air conditioner can
efficiently cool.
BUILDING CLASSES
A ranking system used to compare the services and finishes provided
by buildings in a given area.
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GLOSSARY
BUILDING CODE
Standards set by local governments that dictate the standards for
design, engineering and safety sysems.
BUILDING STANDARD
A landlord's minimum standards for construction and finishes when
constructing a tenant's space or common areas used by tenants.
BUILD-OUT
Any construction done to a space.
BUILD-TO-SUIT
Construction scheme whereby by a landlord builds out a space prior
to a tenant's occupancy to a tenant's specific instructions.
BUMP
A set increase in base rent on a specified date. Typically, the "bump"
will be in addition to the "escalation."
CAM
Acronym for "Common Area Maintenance." The amount of
Additional Rent charged to the tenant, in addition to the Base Rent,
to maintain the common areas of the property shared by the tenants.
Not commonly used in New York City.
CAP RATE
A percentage reflecting the value of an investment arrived at by
dividing net operating income by the purchase price. See also
"capitalization rate. "
CAPITAL EXPENDITURES
Property improvements that cannot be expensed as a current
operating expense for tax purposes. An example would be a new roof,
or brick repairs to the exterior. Distinguished from cash outflows
for expense items such as new paint or plumbing repairs (operating
expenses) that can be expensed in the year they occur.
CAPITAL GAIN
Taxable income derived from the sale of a capital asset. It is equal to
the sales price less the cost of sale and other defined expenses.
CAPITALIZATION RATE
A percentage that relates the value of an income expressed as net
operating income divided by purchase price. See also "cap rate."
CARPETABLE AREA
The area contained within the demising walls of the tenant space
that a tenant can actually use. See also "Usable square feet."
CERTIFICATE OF OCCUPANCY
A document presented by a local government agency or building
department that states the use for which a given space may be used
and that the space has been inspected and found suitable and safe for
that use. Also known as "C of O" and "COO."
CHILLED-WATER
Water that has been cooled and is used to circulate through an air
conditioning system. Usually provided as part of a building-wide air
conditioning system. See also "air cooled" and "water cooled."
CIRCULATION FACTOR
A factor used to estimate the amount of "circulation" space needed
for an office space. A common factor is 1.35 times the net area used
for offices and workstations, etc.
CIRCULATION The "public" spaces of an office space such as hallways, bathrooms,
reception area, etc. This is distiguished from "common area" which
is the public space of the building in which the office resides.
CLASS E FIRE ALARM SYSTEM
A system standard in New York City that requires a certain
configuration of fire safety devices such as alarm pull stations, a
public address system, a telephone connection directly to the fire
department and other aspects.
COMMENCEMENT DATE
The date that constitutes the beginning of the term of the Lease for
all purposes, whether or not the tenant has actually taken possession
so long as beneficial occupancy is possible.
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GLOSSARY
COMMERCIAL REAL ESTATE
Any multifamily, residential, office, industrial, or retail property that
can be bought or sold in a real estate market and is used to provide
income for the owner.
COMMON AREA
Those areas within a building that are available for common use by
all tenants (i.e. lobbies, corridors, restrooms, etc.).
COMMON AREA MAINTENANCE
(CAM)
Charges paid by the tenant for the upkeep of areas designated for
use and benefit of all tenants. CAM charges are common in shopping
centers. Tenants are charged for lot maintenance, snow removal, and
utilities. parking
CONCESSIONS
The value that a landlord is willing to give a tenant as an
inducement to rent. This might be construction, free rent or other
considerations.
CONDEMNATION
The process of taking private property, without the consent of the
owner, by a governmental agency for public use through the power of
eminent domain. See also "Eminent Domain".
CONSTRUCTION MANAGER
A party responsible for the construction of an entire building or
project. A construction manager differs from a general contractor
in that they act more as a consultant to the owner and do not offer
a lump-sum price for the construction. Generally speaking the
Construction manager wil be paid a fixed amount that does not vary
even as the other costs for subcontractors may fluctuate.
CONSUMER PRICE INDEX (CPI)
A measurement of inflation generally calculated by the Federal
Government and published in major periodials such as the New York
Times or Wall Street Journal and used as the basis in some leases for
rent escalations.
CONTIGUOUS SPACE
Multiple suites/spaces within the same building which can be
combined and rented to a single tenant either on the same floor or on
adjoining floors.
CONTINGENT FEES Fees to be paid only in the event of a future occurrence. Examples
include: Attorneys (especially in negligence cases) paid based on
winning the suit and collecting damages; and a broker's commission
paid only upon closing the sale of a piece of property. CONTRACT DOCUMENTS
The complete set of design plans and specifications for the
construction of a building or of a building’s interior improvements.
See also "Specifications" and "Working Drawings".
CONTRACT RENT
The total rental obligation, expressed in dollars, as specified in a
lease. See also "base rent."
CONVEYANCE
Most commonly refers to the transfer of title to property between
parties by deed. The term may also include most of the instruments
by which an interest in real estate is created, mortgaged or assigned.
COO OR C OF O
A document presented by a local government agency or building
department that states the use for which a given space may be used
and that the space has been found suitable and safe for that use.
COOLING TOWER
A device, usually on the roof of a building, where water is circulated
and cooled and then re-circulated into a building's air conditioning
system. See also "water cooled" and "air cooled."
CORE FACTOR
The percentage of a building that is made up of common areas. See
also "add-on factor" and "loss factor."
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GLOSSARY
CORPORATE GUARANTEE
A large, well-funded corporation guarantees the payment of rent on a
space in lieu of another form of security deposit.
COST OF OCCUPANCY
Expenditures that are required to assume and maintain occupancy
of a space. Such expenditures include rent and/or mortgage
payments, and recurring costs, such as real estate taxes, repairs,
operating expenses, and other expenses directly resulting from the
use of property.
CPI
Acronym for "Consumer Price Index." A measurement of inflation
generally calculated by the Federal Government and published in
major periodials such as the New York Times or Wall Street Journal
and used in some leases as the basis for rent escalations.
DEBT SERVICE RATIO
Ratio of net operating income to annual debt service. Expressed as
net operating income divided by annual debt service. See also "DSR"
DEED
A legal document transferring title to real property from the seller to
the buyer upon the sale of such property.
DEFAULT
The general failure to perform a legal or contractual duty or to
discharge an obligation when due. A specific example would be the
failure to make a payment of rent when due, but could be the breach
or failure to perform any of the terms of a lease agreement.
DEMISED AREA The walled off and secured area of a leased space, separated from
spaces leased to others (by a "demising" wall).
DEMISING WALLS
The wall that separates one tenant’s space from another or from the
building’s common area such as a public corridor.
DEMOGRAPHICS
Characteristics of human populations as defined by population size
and density of regions, population growth rates, migration, vital
statistics, and their effect on social conditions.
DEPRECIATION
The decrease in value due to wear and tear, decay, decline in price,
etc. Typically used in computing the value of property for tax
purposes.
DESIGN/BUILD
A system in which a single entity is responsible for both the design
and construction.
DSR
Acronym for "debt service ratio." Ratio of net operating income to
annual debt service. Expressed as net operating income divided by
annual debt service.
DUE DILIGENCE
The process of examining a property, related documents, and
procedures conducted by or for the potential lender or purchaser to
reduce risk.
EFFECTIVE RENT
The actual rental rate to be achieved by the landlord after deducting
the value of concessions from the base rental rate paid by a tenant,
usually expressed as an average rate over the term of the lease.
ELECTRICAL SERVICE
A general term used to describe the main electrical lines that enter
a building or space. Most commonly, it is the main junction from
which lights, outlets and other electrical uses begin.
EMINENT DOMAIN
A power of the government, municipalities authorized to acquire
private property for public use by condemnation, in return for just
compensation. See also “Condemnation”.
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GLOSSARY
ENCAPSOLATED
Enclosed, as in a capsule. In building parlance, it is understood to
mean that certain conditions can be permanently enclosed and be
made safe. For example, this is a common remediation for some lead
paint conditions. If lead paint is sufficiently covered with non-toxic
paint, the area is considered safe for occupancy.
ENCROACHMENT
The intrusion of a structure which extends over a property line,
easement boundary or building setback line.
ENCUMBER
Any right to, or interest in, real property held by someone other
than the owner, but which will not prevent the transfer of fee title.
Examples would be a mechanic's lien or perhaps a second mortgage.
ENGAGEMENT LETTER AKA
"EXCLUSIVE"
An agreement between the owner of a property and a real estate
broker authorizing the broker to attempt to sell or lease a property
or space for some form of compensation. This could also be an
agreement between a potential tenant and a real estate broker giving
the broker the exclusive right to represent the tenant in lease or
purchase negotiations. See also “Exclusive Listing Agreement”.
ENVIRONMENTAL HAZARDS
Any physical or natural condition or event which possesses a risk to
humans.
ENVIRONMENTAL IMPACT
STATEMENT
Documents which are required by federal and state agencies to
accompany proposals for major projects and programs that will
likely have an impact on the surrounding environment.
EQUITY
The fair market value of an asset less any outstanding indebtedness
or other encumbrances.
EQUITY LEASE
A type of joint venture arrangement in which an owner enters into
a contract with a user who agrees to occupy a space and pay rent as
a tenant, but at the same time, receives a share of the ownership
benefits such as periodic cash flows, interest and cost recovery,
deductions, and perhaps a share of the sales proceeds.
ESCALATION
A clause in a lease which provides for the rent to be increased.
This is usually accomplished by several means such as fixed
periodic increases, increases tied to the Consumer Price Index or
adjustments based on changes in operating expenses.
ESCROW AGREEMENT
A written agreement made between the parties to a contract and an
escrow agent. The escrow agreement sets forth the basic obligations
of the parties, describes the monies (or other things of value) to be
deposited in escrow, and instructs the escrow agent concerning the
disposition of the monies deposited.
ESTOPPLE CERTIFICATE
A signed statement certifying that certain statements of fact are
correct as of the date of the statement and can be relied upon by
a third party, including a prospective lender or purchaser. In the
context of a lease, a statement by a tenant identifying that the
lease is in effect and certifying that no rent has been prepaid and
that there are no known outstanding defaults by the landlord
(except those specified).
EVICTION, ACTUAL
To expel (a person, especially a tenant) from land, a building, etc.,
by legal process.
EVICTION, CONSTRUCTIVE
An action by a landlord that compels a tenant to leave the premises
(as by rendering the premises unfit for occupancy}
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GLOSSARY
EXCHANGE, 1031
Under Section 1031 of the Internal Revenue Code, like kind property
used in a trade or business or held as an investment can be exchanged
for another property without paying taxes on any capital gains.
Under a fully qualified 1031 exchange, real estate is traded for other
like kind property and taxes are deferred until a later date.
EXCLUSIVE AGENCY
The right of an agent to be the sole agent with the right to sell or lease
a property, while still allowing the owner to conclude a transaction
directly with a purchaser.
EXCLUSIVE LISTING AGREEMENT
An agreement between the owner of a property or space and a real
estate broker authorizing the broker to attempt to sell or lease a
property or space in return for some form of compensation. See also
“Listing Agreement”.
EXCLUSIVE RIGHT TO SELL
The sole right conferred by an owner of property to an agent to sell or
lease a given property.
EXPANSION OPTION A right granted by the landlord to the tenant whereby the tenant has
the option(s) to add more space to its premises.
EXPENSE STOP
An agreed dollar amount of taxes and operating expense over which
the tenant will pay its prorated share of increases. May be applied to
specific expenses (e.g., property taxes or insurance).
EXTENSION OPTION An agreed continuation of occupancy in the future under terms
defined in a lease. it is a right granted by the landlord to the
tenant whereby the tenant has the option to extend the lease for an
additional period of time. FAIR MARKET RENT The rent which would be normally agreed upon by a landlord and
tenant for a specific property at a given time. In a lease, the term
is defined in a number of different ways and is subject to extensive
negotiation and interpretation. FAR
Acronym for "Floor Area Ratio." The ratio of the gross square
footage of a building to the land on which it is situated. Calculated
by dividing the total square footage in the building by the square
footage of land area.
FEASIBILITY ANALYSIS
The process of evaluating a proposed project to determine if that
project will satisfy the objectives set forth by the parties involved
(including owners, investors, developers, and lessees.)
FFE
Acronym for "Furniture, Fixtures and Equipment." Generally used
in leasing to mean any movable items in a space such as desks, chairs
and telephone systems. In retail leases it also means display cases,
etc. An incoming tenant might specify that these items are to be left
for their use.
FIRE RATED
The duration for which a passive fire protection system can
withstand a standard fire resistance test. This can be quantified
simply as a measure of time, or it may entail a host of other criteria,
involving other evidence of functionality or fitness for purpose.
FIRST GENERATION SPACE
Generally refers to new space that is currently available for lease
and has never before been occupied by a tenant. See also "Second
Generation Space."
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GLOSSARY
FIRST MORTGAGE
The senior mortgage which, by reason of its position, has priority
over all junior encumbrances. The holder of the first or senior
mortgage has a priority right to payment in the event of default.
FLEX SPACE
A building providing its occupants the flexibility of utilizing the
space. Usually provides a configuration allowing a flexible amount
of office or showroom space in combination with manufacturing,
laboratory, warehouse distribution, etc.
FLOOR AREA RATIO (FAR)
The ratio of the gross square footage of a building to the land on
which it is situated. Calculated by dividing the total square footage
in the building by the square footage of land area.
FMV
Acronym for "Fair Market Value." The sale or lease price at which a
property would change hands between a willing buyer and willing
seller.
FORCE MAJEURE
A force that cannot be controlled by the parties to a contract and
prevents said parties from complying with the provisions of the
contract. This includes "acts of God" such as a flood or a hurricane or,
acts of man such as a strike, fire or war.
FORECLOSURE
A procedure by which the mortgagee (“lender”) either takes title
to or forces the sale of the mortgagor’s (“borrower's”) property in
satisfaction of a debt.
FREE RENT A concession granted by a landlord to a tenant whereby the tenant is
excused from paying rent for a stated period during the lease term. FULLY SERVICED LEASE A lease in which the stated rent includes the operating expenses and
taxes for the building. See also "Gross Lease" and "Net Lease." FURNITURE, FIXTURES, AND
EQUIPMENT (FFE)
Generally refers to any movable items in a space such as desks, chairs
and telephone systems. In retail leases it also means display cases,
etc. An incoming tenant might specify that these items are to be left
for their use.
GENERAL CONTRACTOR
The prime contractor responsible for the construction of an entire
building or project, rather than just a portion of the work. The
general contractor hires subcontractors, (e.g., plumbing, electrical,
etc.), coordinates all work, and is responsible for payment to
subcontractors. See also "Construction Manager"
GOOD GUY GUARANTEE
A limited personal guarantee whereby a guarantor assures that a
tenant will pay rent on a space as long as that tenant resides in the
space. The guarantee is automatically cancelled when the tenant
moves out and gives possession back to the landlord. The good-guy
guarantee is designed to encourage tenants to move out of a given
space if they decide to stop paying rent and is an inducement to leave
the space rather than forcing the landlord to undertake a costly and
time-consuming eviction process.
GROSS ABSORBTION
A measure of the total square feet leased over a specified period
of time with no consideration given to space vacated in the same
geographic area during the same time period. See also “Net
Absorption”.
GROSS BUILDING AREA
The total floor area of the building measuring from the outer surface
of exterior walls and windows and including all vertical penetrations
(e.g. elevator shafts, etc.) and basement space.
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GLOSSARY
GROSS LEASE
A lease in which the tenant pays a flat sum for rent out of which
the landlord must pay all expenses such as taxes, insurance,
maintenance, utilities, etc. See also: "Modfied Gross Lease."
GROSS UP An adjustment made to operating expenses to account for the
occupancy level in a building. When operating expenses are "grossed
up", it means that the building's variable expenses have been
adjusted upwards to the level that those expenses would be incurred
if the building was fully occupied (typically 95%). GROUND LEASE
A lease where rent is paid to the owner for use of land, normally on
which to build a building. Generally, the arrangement is that of a
long-term lease (e.g. 99 years) with the lessor retaining title to the
land.
GUARANTEE, CORPORATE
A large, well-funded corporation guarantees the payment of rent on a
space in lieu of another form of security deposit.
GUARANTEE, GOOD GUY
A limited personal guarantee whereby a guarantor assures that a
tenant will pay rent on a space as long as that tenant resides in the
space. The guarantee is automatically cancelled when the tenant
moves out and gives possession back to the landlord. The good-guy
guarantee is designed to encourage tenants to move out of a given
space if they decide to stop paying rent and is an inducement to leave
the space rather than forcing the landlord to undertake a costly and
time-consuming eviction process.
GUARANTEE, PERSONAL
Agreement whereby an individual assures the satisfaction of the debt
of another or to perform the obligation of another if and when the
debtor fails to do so.
HARD COST
The cost of actually constructing the improvements (i.e.
construction costs). See also Soft Cost and Indirect Cost.
HIGHEST AND BEST USE
The use of a space which will bring the greatest economic return over
a given time which is physically possible, appropriately supported
and financially feasible.
HOLD OVER
A tenant retaining possession of the leased premises after the
expiration of a lease.
HOTELLING An alternative workspace concept where rather than having an
assigned exclusive workspace, an employee accesses one space,
perhaps being one of many such spaces in common with others on an
as needed basis, and otherwise works outside of the office. HVAC
The acronym for “Heating, Ventilating and Air-Conditioning”.
IMPROVEMENTS
INDIRECT COSTS
In the context of leasing, the term typically refers to the
improvements made to or inside a building but may include any
permanent structure or other development, such as a street,
sidewalks, utilities, etc. See also “Leasehold Improvements” and
"Tenant Improvements".
Development costs, other than material and labor costs which are
directly related to the construction of improvements, including
administrative and office expenses, commissions, architectural,
engineering and financing costs. See also Soft Costs.
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GLOSSARY
INVENTORY
The total amount of rentable square feet within a certain market
without regard to its availability or condition, and categories
can include all types of leased space such as office, flex, retail and
warehouse space.
JUDGMENT
The final decision of a court resolving a dispute and determining the
rights and obligations of the parties.
LANDLORD (LESSOR) The party (usually the owner) who gives the lease (right to
possession) in return for a consideration (rent). LC
Acronym for "letter of credit." A commitment by a bank or other
person, made at the request of a customer, that the issuer will honor
drafts or other demands for payment upon full compliance with the
conditions specified in the letter of credit. Letters of credit are often
used in place of cash deposited with the landlord in satisfying the
security deposit provisions of a lease. Also known as "Standy letter of
credit" or just "Letter of credit".
LEASE
An agreement whereby the owner of real property (i.e., landlord/
lessor) gives the right of possession to another (i.e., tenant/
lessee) for a specified period of time (i.e., term) and for a specified
consideration (i.e., rent).
LEASE TERM The specific period of time in which the Landlord grants to the
tenant the right to possession of real estate. LEASEHOLD IMPROVEMENTS
Improvements made to the leased premises by or for a tenant. See
also “Tenant Improvements”.
LEGAL DESCRIPTION
A geographical description identifying a parcel of land by
government survey, metes and bounds, or lot numbers of a recorded
plat including a description of any portion thereof that is subject to
an easement or reservation.
LESSEE (TENANT) The party to whom a lease (the right to possession) is given in return
for a consideration (rent). LESSOR (LANDLORD) The party (usually the owner) who gives the lease (right to
possession) in return for a consideration (rent). LETTER OF CREDIT
A commitment by a bank or other person, made at the request of
a customer, that the issuer will honor drafts or other demands
for payment upon full compliance with the conditions specified
in the letter of credit. Letters of credit are often used in place of
cash deposited with the landlord in satisfying the security deposit
provisions of a lease. Also known as "Standy letter of credit" and
"LC".
LETTER OF INTENT
A preliminary agreement stating the proposed terms for a final
contract. They can be "binding" or "non-binding". This differs from a
"Term Sheet" or "Offer Letter" which are never binding.
LEVERAGE
The use of borrowed funds to acquire an investment.
LIEN
A claim property used to secure a debt, charge or the performance of
some act. See also "Mechanics Lien."
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LIEN WAIVER
LISTING AGENT GLOSSARY
A waiver of mechanic’s lien rights, signed by a general contractor and
his subcontractors, that is often required before the general
contractor can receive a draw under the payment provisions of a
construction contract. May also be required before the owner can
receive a draw on a construction loan. Also known as "Waiver of
Liens"
The real estate agent hired by the property owner to lease a property
on their behalf.
LISTING AGREEMENT
An agreement between the owner of a property or space and a real
estate broker authorizing the broker to attempt to sell or lease a
property or space in return for some form of compensation. See also
“Exclusive Listing Agreement”.
LOSS FACTOR
The difference between the actual, usable area of a space and the
"rentable" area. See also "rentable square feet", "Add-on Factor," and
"Core Factor."
MANUFACTURER'S GROSS LEASE
A lease where the tenant pays some expenses over and above the base
rent and the landlord pays others. In this scheme, usually the tenant
pays for utilities and real estate tax increases above a base year,
while the landlord pays for maintenance and insurance. See also:
"Gross Lease" and "Modified Gross Lease."
MARKET RENT
The rental income that a property would command dictated by the
rents that landlords are willing to accept and tenants are willing to
pay in recent lease transactions for comparable space.
MARKET SURVEY
1) A review of the current space on the market which usually includes
at a minimum the available space and the price. 2)A forecast of
future demand for a certain type of real estate project which
includes an estimate of the square footage that can be absorbed and
the rents that can be charged. Also called “Marketability Study”.
MASTER LEASE
A primary lease that controls subsequent leases or subleases.
MECHANIC'S LIEN
A lien against a property placed by a contractor, usually in order
to secure payment of a debt. A mechanic's lean is usually given a
priority status when it comes to the payment of debts.
MIXED USE
Space within a building or project providing for more than one use
(e.g. an apartment building with retail, or medical space.)
MODIFIED GROSS LEASE
A lease where the tenant pays some expenses over and above the base
rent and the landlord pays others. In this scheme, usually the tenant
pays for utilities and real estate tax increases above a base year,
while the landlord pays for base taxes, maintenance and insurance.
See also: "Gross Lease." "Manufacturer's Gross Lease," "NNN" or
"Triple Net Lease."
MORTGAGE
A written agreement creating an interest in real estate and that
provides security for the performance of a duty and the payment of
a debt to a lender (the mortgagee.) by the borrower (mortgagor.) who
retains use of the property.
NET ABSORPTION
The square feet leased in a specific geographic area over a fixed
period-of-time after deducting space vacated in the same area during
the same period. See also “Gross Absorption”.
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GLOSSARY
NET LEASE Today this generally indicates a lease in which the stated rent
excludes the insurance, utilities, operating expenses and real estate
taxes for the building. The tenant is then responsible for the payment
of these costs either directly or as additional rent. Opposite of Gross
or Fully Serviced Lease. See also "Triple Net" and "NNN".
NET PRESENT VALUE (NPV) The amount of money that must be invested now to produce the
known future value. NET RENTABLE AREA The area of a leased space upon which rent is based. It is generally
calculated to be the amount of space in a leased area which is usable
by the tenant plus a proportionate amount of the common areas. In
New York City, though, this number is determined by Landlords and
is not subject to any set standard or governmental regulation and can
vary tremendously. See also "Rentable Square Feet."
NNN
Acronym for "Net Net Net." A lease in which the tenant pays, in
addition to rent, certain costs associated with a leased property,
which may include property taxes, insurance premiums, repairs,
utilities, and maintenances. There are also “Net Leases" and
“NN” (double net) leases, depending upon the degree to which the
tenant is responsible for operating costs. See also “Gross Lease,”
"Manufacturer's Gross Lease" and "Triple Net Lease."
NON-COMPETE CLAUSE
A clause that can be inserted into a lease specifying that no other
tenant operating the same or similar type of business can occupy
space in the a given building. This clause benefits service-oriented
businesses desiring exclusive access to the building’s population or
street traffic (i.e. travel agent, deli, etc.).
NONDISTURBANCE So long as a tenant is not in default, its rights to occupancy under the
lease will not be disturbed by the lessor or it's successors or assigns. NON-RECOURSE LOAN
A loan which bars a lender from seeking a deficiency judgment
against a borrower in the event of default. The borrower is not
personally liable if the value of the collateral for the loan falls below
the amount required to repay the loan.
NON-STRUCTURAL WORK
Work that does not affect the base building structure such as
installing office partitions, running electrical wiring for outlets
or new lights, or installing water lines for a kitchen. See also
"structural work."
NORMAL WEAR AND TEAR
The deterioration or loss in value caused by the tenant’s normal
and reasonable use. In many leases the tenant is not responsible for
“normal wear and tear”.
NOT TO BE UNREASONABLY
WITHHELD
When tenants make requests of a landlord (such as to be allowed to
sublease a given space) the landlord cannot groundlessly withhold
consent for the action. Any objection needs to be based on some
kind of "reasonable" standard.
OCCUPANCY COST Any cost or charge incurred by a tenant pursuant to its lease, such
as rent, operating expense increases, parking charges, moving
expenses, remodeling costs, etc. OCCUPANCY DATE Unless specifically stated otherwise in the lease, it is the date on
which the tenant takes possession of its leased premises. See also
"Commencement Date". PAGE NO. 167
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GLOSSARY
OPEN LISTING Any property that is leased directly by the owner. Sometimes, the
owner will employ an in-house leasing agent. Typically, the owner
will pay a full commission to any broker who brings a tenant to the
property. OPERATING EXPENSE
ESCALATION
The base rent for a lease rises in proportion to the cost of operating
an office building. The categories of costs will include such expenses
as janitorial, management fees, utilities, and similar day to day
expenses, as well as taxes, insurance, and a reserve for replacement
of items which periodically wear out. Should not include capital
expenses such as roof replacement nor expenses associated with the
production of income such as leasing commissions and legal fees. OWNER'S REPRESENTATIVE An agent who is an advocate for the owner and/or landlord. PASS THROUGH
A cost that is the responsibility of the tenant for which a landlord
receives the bill but "passes it through" to the tenant.
PENETRATION
Any opening in a wall or floor. Used mostly to describe areas between
two independent spaces where stairs, conduit, ductwork, or piping
is placed.
PERCENTAGE LEASE
Refers to a provision of the lease calling for the landlord to be paid a
percentage of the tenant's net or gross sales as a component of rent.
There is usually a base rent amount to which "percentage" rent is
then added. This type of clause is most often found in retail leases.
PERFORMANCE BOND
A surety bond posted by a contractor guaranteeing full performance
of a contract with the proceeds to be used to complete the contract or
compensate for the owner’s loss in the event of nonperformance.
PERSONAL GUARANTEE
Agreement whereby an individual assures the satisfaction of the debt
of another or to perform the obligation of another if and when the
debtor fails to do so.
PREMISES Typically the entire rentable area leased by lessee. Sometimes used
to designate solely the useable area leased by lessee, i.e. that for
which the lessee has exclusive occupancy as opposed to the common
areas. PRESENT VALUE The present value is the amount that must be invested now to
produce the known future value. See also "Net Present Value."
PRO RATA
Proportionately. In the case of a tenant, the proportionate share
of expenses for the maintainenance and operation of the property
based on the ratio of space a tenant occupies in a given building. See
also "Common Area" and "Operating Expenses".
PUNCH LIST
An itemized list, typically prepared by the architect or construction
manager, documenting incomplete or unsatisfactory items after
the contractor has notified the owner that the tenant space is
substantially complete.
QUIET ENJOYMENT
Now more commonly referred to as "Warranty of Possession", It
provides a warranty by Landlord that it has the legal ability to convey
the possession of the premises to Tenant. This is the essence of the
landlord's agreement and the tenant's obligation to pay rent.
RAW SPACE
Unimproved "shell space" in a building.
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GETTING TO LEASE
REASONABLE CONSENT RECAPTURE
GLOSSARY
A standard applied in a lease which limits the landlord's ability
to withhold consent in its sole discretion. If a reasonable person
would give consent to an action given the circumstances, so must
the landlord. A clause granting the landlord a right to terminate the lease in the
event that a tenant wishes to sublease a space. Typically, in order
for a landlord to exercise this right, there must be some overriding
interest benefiting the landlord.
RECOURSE
The right of a lender, in the event of a default by the borrower, to
recover against the assets of a party who is secondarily liable for the
debt (e.g. endorser or guarantor). See also "non-recourse."
REMEDIATE
To correct a fault. In leasing terms, it is the concept of fixing an
underlying flaw in the building or space. For instance a condition
containing asbestos would need to be remediated.
RENEWAL OPTION
A clause giving a tenant the right to extend the term of a lease,
usually for a stated period of time and at a rent amount as provided
for in a lease.
RENT
Compensation or fee paid, usually periodically (i.e. monthly rent
payments, for the occupancy and use of any rental property, land,
buildings, equipment, etc.
RENT COMMENCEMENT DATE
The date on which a tenant begins paying rent always happens on or
after Possession, but could be before or after Occupancy.
RENT CONCESSION
Concessions a landlord may offer a tenant in order to secure their
tenancy. While rental abatement is one form of a concession, there
are many others such as: increased tenant improvement allowance,
signage, lower than market rental rates and moving allowances to
name a few. See also "Abatement".
RENTABLE SQUARE FEET (RSF)
The area of a leased space upon which rent is based. It is generally
calculated to be the amount of space in a leased area which is usable
by the tenant plus a proportionate amount of the common areas. In
New York City, though, this number is determined by Landlords and
is not subject to any set standard or governmental regulation and can
vary tremendously.
RENTAL RATE The amount of Rent paid for the occupancy and use of real property.
Typically stated on a per square foot per month or per year basis. RENT-UP PERIOD
That period of time, following construction of a new building, when
tenants are actively being sought and the project is approaching its
stabilized occupancy.
REO
Acronym for "Real Estate Owned." Real estate that has come to
be owned by a lender, including real estate taken to satisfy a debt.
Includes real estate acquired by lenders through foreclosure or
in settlement of some other obligation.
RIGHT OF FIRST OFFER OR FIRST
OPPORTUNITY A right, usually given by an owner to a tenant, which gives the tenant
a first chance to buy or lease a property if the owner decides to sell
or lease. Unlike under a Right of First Refusal, the owner is not
required to have a legitimate offer which the tenant can then match
or refuse. If the tenant refuses to make an offer or if the parties
cannot agree on terms, the property can then be sold or leased to a
third party. PAGE NO. 169
GETTING TO LEASE
GLOSSARY
RIGHT OF FIRST REFUSAL A right, usually given by an owner to a tenant, which gives the tenant
a first chance to buy the property or lease a portion of the property if
the owner decides to sell or lease. The owner must have a legitimate
offer which the tenant can match or refuse. If the tenant refuses, the
property can then be sold or leased to the first offeror. RIGHT OF OFFSET A specific clause in a lease where the tenant has the right to deduct
from the rent certain costs which are due to the tenant from the
landlord. Included may be the costs incurred by tenant to cure
defaults of the landlord, after notice and failure by landlord to cure
the defaults.
SALE-LEASEBACK
An arrangement by which the owner occupant of a property agrees
to sell all or part of the property to an investor and then lease it
back and continue to occupy space as a tenant. Although the lease
technically follows the sale, both will have been agreed to as part of
the same transaction.
SECOND GENERATION SPACE
Refers to previously occupied space that becomes available for lease,
either directly from the landlord or as sublease space. See also "First
Generation Space".
SECOND MORTGAGE
A mortgage on property that ranks below a first mortgage in priority.
Properties may have two, three, or more mortgages, deeds of trust, or
land contracts as liens at the same time.
SECURITY DEPOSIT
A deposit of money by a tenant to a landlord to secure performance
of a lease. This deposit can also take the form of a Letter of Credit or
other financial instrument.
SENIOR MORTGAGE
The first mortgage which, by reason of its position, has priority over
all junior encumbrances. The holder of the first or senior mortgage
has a priority right to payment in the event of default.
SETBACK
The distance from a curb, property line or other reference point,
within which building is prohibited.
SOFT COST
That portion of an equity investment other than the actual cost of
the improvements themselves (i.e. architectural and engineering
fees, commissions, etc.) and which may be tax-deductible in the first
year. See also “Hard Cost”.
SPACE PLANNING The planning of the layout of the interior space of a building to meet
the needs of the user. Can also include detailed interior design and
preparation of construction drawings. One does not need to be a
licensed architect to provide space planning and/or interior design
services. Preparation of construction drawings for permit, however,
have to be prepared by an architect licensed in that jurisdiction. SPECIAL ASSESSMENT
Any special charge levied against real property for public
improvements (e.g., sidewalks, streets, water and sewer, etc.) that
benefits the assessed property.
SPECIFIC PERFORMANCE
A requirement compelling one of the parties to perform or carry out
the provisions of a contract into which they have entered.
STANDBY LETTER OF CREDIT
A commitment by a bank that it will honor drafts or other demands
for payment upon full compliance with the conditions specified
in the letter of credit. Letters of credit are often used in place of
cash deposited with the landlord in satisfying the security deposit
provisions of a lease. Also known as "letter of credit" and "LC".
PAGE NO. 170
GETTING TO LEASE
GLOSSARY
STEP-UP LEASE
A lease specifying set increases in rent at set intervals during the
term of the lease.
STRUCTURAL WORK
Work a landlord performs to the building that affects all tenants
equally and is beyond what a tenant could be reasonably required to
do. For instance, replacing brick or repointing the exterior, replacing
a water main, replacing windows or reinforcing steel girders. See
also "non-structural work."
SUBCONTRACTOR
A contractor working under and being paid by the general contractor
- often a specialist in nature, such as an electrical contractor, cement
contractor, etc.
SUBLEASE A lease, under which the lessor is the lessee of a prior lease of the
same property. The sublease may be different in terms from the
original lease, but is almost always governed by or subordinated to
the original or master lease.
SUBORDINATION AGREEMENT
As used in a lease, the tenant generally accepts the leased premises
subject to any recorded mortgage or deed of trust lien and all existing
recorded restrictions, and the landlord is often given the power to
subordinate the tenant's interest to any first mortgage or deed of
trust lien subsequently placed upon the leased premises.
SUBORDINATION To make subject or junior to. SUBSTANTIAL COMPLETION Generally used in reference to the construction of tenant
improvements (TI). The tenant's premises is typically deemed to
be substantially completed when all of the TI for the premises have
been completed even though there may be minor issues that need to
be corrected that do not impede occupancy.
TAX BASE
The assessed valuation of all the real property that lies within the
jurisdiction of a taxing authority, which is then multiplied by the tax
rate or mill levy to determine the amount of tax due.
TAX LIEN
A statutory lien, existing in favor of the state or municipality, for
nonpayment of property taxes which attaches only to the property
upon which the taxes are unpaid.
TENANT
One who rents real estate from another and holds an estate by virtue
of a lease.
TENANT AT WILL
One who holds possession of premises by permission of the owner or
landlord, the characteristics of which are an uncertain duration (i.e.
without a fixed term) and the right of either party to terminate on
proper notice.
TENANT IMPROVEMENT
ALLOWANCE
Defines the fixed amount of money contributed by the landlord
toward tenant improvements. The tenant pays any of the costs that
exceed this amount. Also commonly referred to as "TI."
TENANT IMPROVEMENTS (TI)
Improvements made to the leased premises by or for a tenant.
Generally, especially in new space, part of the negotiations will
include in some detail the improvements to be made in the leased
premises by the landlord. See also “Leasehold Improvements”,
and “Workletter”.
TENANT REPRESENTATIVE An agent who is an advocate for the tenant. The relationship is most
often the product of a signed representation agreement. TI
Acronym for "tenant improvements."
PAGE NO. 171
GETTING TO LEASE
GLOSSARY
TIME IS OF THE ESSENCE
Means that performance by one party within the period specified in
the contract is essential to require performance by the other party.
TITLE
The means whereby the owner of lands has the just and full
possession of real property.
TITLE INSURANCE
A policy issued by a title company after a thorough search of
available records which insures against loss resulting from defects
of title to a specifically described parcel of real property, or from the
enforcement of liens existing against it at the time the title policy is
issued.
TITLE SEARCH
A review of all recorded documents affecting a specific piece of
property to determine the present condition of title.
TRADE FIXTURES
Personal property that is attached to a structure (i.e. the walls of the
leased premises) that are used in the business. Since this property is
part of the business and not deemed to be part of the real estate, it is
typically removable upon lease termination.
TRIPLE NET RENT
A lease in which the tenant pays, in addition to rent, certain costs
associated with a leased property, which may include property
taxes, insurance premiums, repairs, utilities, and maintenance
costs. There are also “Net Leases" and “NN” (double net) leases,
depending upon the degree to which the tenant is responsible for
operating costs. See also “Gross Lease,” "Modified Gross Lease",
"Manufacturer's Gross Lease" and "NNN Lease."
TURNKEY Referring to an owner making a property ready for a tenant to begin
business by having the tenant furnish only furniture, phone and
inventory, if any. Turnkey tenant improvements are provided at the
landlord's expense according to plans and specifications previously
agreed upon by the parties.
USABLE SQUARE FEET
The area contained within the demising walls of the tenant space
that a tenant can actually use. Sometimes known as the "carpetable"
area. See also "loss factor".
USE CLAUSE
The specific purpose for which a building or space is intended to be
used as specified in a lease.
VACANCY RATE
The total amount of available space compared to the total inventory
of space and expressed as a percentage.
VALUE ENGINEERING Process by which costs can be decreased or benefits can be added to
an undertaking or project through redesign, prioritization or other
similar actions. VARIANCE
Refers to permission that allows a property owner to depart from
the literal requirements of a zoning ordinance that, because of some
special circumstances.
VERTICAL TRANSPORTATION Elevators or escalators moving people or freight between floors in a
building. WARRANTY OF POSSESSION
Provides a warranty by Landlord that it has the legal ability to
convey the possession of the premises to Tenant. This is the essence
of the landlord’s agreement and the tenant’s obligation to pay rent.
WATER-COOLED
A type of air conditioning system that relies on water pumped
through it that has been cooled or chilled. See also "chilled water"
and "air cooled."
PAGE NO. 172
GETTING TO LEASE
GLOSSARY
WORK LETTER Specifications for tenant improvements usually attached to a lease
and/or letter of intent. The work letter provides the basis for working
drawings and contractor pricing and may allocate costs between the
parties. Also may establish critical dates for approval of drawings
and processes. WORKING DRAWINGS
The set of plans for a building or project that comprise the contract
documents that indicate the precise manner in which a project is
to be built. This set of plans includes a set of specifications for the
building or project.
ZONING
The division of a city or town into zones and the application of
regulations having to do with the structural, architectural design
and intended use of buildings within such designated zone (i.e. a
tenant needing manufacturing space would look for a building
located within an area zoned for manufacturing).
PAGE NO. 173
GETTING TO LEASE
INDEX
GETTING TO LEASE
PAGE NO. 174
A
A/C
INDEX
102
ABATEMENT
B
BTU
105
BUBBLE
44
OF HAZARDOUS
MATERIALS
123
BUILDING CLASSES
See Class of
Building
OF RENT
98
BUILDING DIRECTORY
125
ACCESS HOURS
127
BUILDING HOURS
127
ACP-5
123
BUILDING STANDARD
112
ACQUIRING THE SPACE
71
BUMP
86
AIR-CONDITIONING
102
BURN DOWN
134
AIR-COOLED
103
BUSINESS TERMS
73
BUILDING SUPPLIED
105
CENTRAL
103
CAM
91
CHILLED WATER
107
CANCELATION CLAUSE
121
COOLING TOWER
105
106
CENTRAL POINT OF
CONTACT
24
OVERTIME
PACKAGE
103
95
SUPPLEMENTAL
107
CHARGES OTHER THAN
RENT
104
CLASS OF BUILDING
WINDOW
30, 45, 95,
97, 109, 126
C
ARCHITECT
46, 66
CLEANING
31, 109
AS-BUILT FLOOR PLAN
54
COMMENTS TO LEASE
154
ASKING RENT
81, 83
91
ASSIGNMENT
118
COMMON AREA
MAINTENANCE
AVERAGE RENT
86
COMMUNICATION
40
CONDITION ON
POSSESSION
110
BASE BUILDING WORK
60, 80, 111
CONFIGURATION
54, 59, 68
BASE RENT
84, 86
CONSTRUCTION
BEGINNING THE SEARCH
32
46, 59, 63,
123
BID
96
LOANS
65
BREAKING THE LEASE
24, 136
65
BRITISH THERMAL
UNITS
See BTU
PER SQUARE FOOT
CALCULATION
TAX IMPLICATIONS
65
BROKER
CONSUMER PRICE
INDEX ESCALATION
85
COSTAR
34, 43
EXCLUSIVE
34
OFF MARKET SPACE
34
PAYING
33
COUNTER-SIGNING THE
LEASE
158
USING
32
CPI
85
GETTING TO LEASE
PAGE NO. 175
D
E
INDEX
DEAL-MAKING
EXPENSES
133
DECIDING BETWEEN
SPACES
38, 56
DEFINE THE
REQUIREMENT
42
DEFINE THE SPACE
76
DEFINE THE USE
76
DEMOLITION CLAUSE
121
DEPRECIATION
66
DIRECT OPERATING
ESCALATION
F
FINANCIAL
STATEMENTS
127, 131, 139
FLOOR PLAN
54
FOOT TRAFFIC
77
FREE RENT
24, 98, 101
FOR WORK
99
FURNITURE LEASE
65
GETTING TO YES
142
85
GOOD GUY GUARANTEE
136
DIRECTLY METERED
ELECTRIC
92
GOOD WORKING ORDER
AND CONDITION
115
DUN AND BRADSTREET
128
GREAT RECESSION
43
GROWTH, PLANNING
FOR
19
ELECTRICITY CHARGES
84, 91
GUARANTEE, GOOD GUY
AND PERSONAL
136
GUARD CHARGES
96
HAZARDOUS
MATERIALS
123
DIRECTLY METERED
92
PROPORTIONATE
SHARE
93
RENT INCLUSION
92
SUBMETERED
92
ENFORCABILITY OF
LEASE
122
ESCALATION
84
BUMP
86
CONSISTANCY IN
LEASE
151
CONSUMER PRICE
INDEX
85
DIRECT OPERATING
FUEL
PORTER'S WAGE
85
TAX
84
G
H
HEAT
108
HISTORY OF RENTAL
MARKET
43
HOLDOVER
27, 150
HOW MUCH SPACE DO
YOU NEED
18, 19
INFLATION
43
85
INSURANCE PROVISION
149
84
INTEREST ON SECURITY
135
LANDLORD’S APPROVAL
116
I
L
EXCLUSIVE AGREEMENT
34
LANDLORD’S WORK
113
EXPANSION OPTION
117
81, 133
EXPECTATIONS
43, 69
LANDLORD'S
ECONOMICS
LAWYERS
153
LAYOUT
54, 59, 68
PAGE NO. 176
M
N
O
GETTING TO LEASE
INDEX
LEASE EXPIRATION
26
TO CANCEL
121
LEASE SECTIONS
145, 152
TO EXPAND
117
LEGAL POSSESSION
79
ORGANIZING THE
SEARCH
50
OTHER CHARGES
95
LENGTH OF TERM
78
LETTER OF CREDIT
134
LIGHT
55, 58
LOANS
65
LOOKING FOR SPACE
18
LOSS FACTOR
46
MAINTENANCE
31
MANAGEMENT
STRUCTURE
68
MAP OF THE LEASE
152
MARKET CONDITIONS
24, 43, 84,
87, 96, 98,
101
MORALS CLAUSE
77
MORTGAGE
82
RENOVATION
MANAGEMENT FEE
P
116
PARKS, TO LOCATE
NEAR
30
PENALTY
27
PER PERSON SQUARE
FEET
18
PERCENT OF BUILDING
TENANT OCCUPIES
151
PERSONAL GUARANTEE
136
PIONEERS
45
PLANNING BACKWARD
23
PORTER’S WAGE
ESCALATION
85
POSSESSION
79
NEGOTIATION
42, 72, 81,
83, 142
PREBUILT SPACE
57
PREPRINTED FORM
146, 154
NEIGHBORHOOD
28, 45
PRICE RANGE
28
NET INCOME
82
PRICING
43
NEW CONSTRUCTION
45
PROGRAMMING
18, 68
NNN
112
75, 139
PROPORTIONATE SHARE
ELECTRIC
93
NON-BINDING OFFER
NON-STRUCTURAL
WORK
112
QUALITY OF LIFE
45
NOTARIZING
157
QUESTIONS TO ASK
53
OFF MARKET SPACE
34
41, 72, 83
REAL ESTATE TAX
ESCALATIONS
88
OFFER LETTER
OFFER NOT BINDING
75, 139
RECESSION
43
OFFICE USE
76
REMEDIATION
123
RENT ABATEMENT
98
OPTION
Q
R
PAGE NO. 177
GETTING TO LEASE
INDEX
RENT INCLUSION
ELECTRIC
92
TENANT
IMPROVEMENTS
80, 99
RENT NEGOTIATION
81
TENANT'S WORK
115
TERM LENGTH
78
RENTABLE SQUARE FEET 18
S
T
RENTAL RATE AVERAGE
43
TERM SHEET
72
RENTER'S INSURANCE
149
TI ALLOWANCE
60
REPAIRS
31
TIMING
RIDER
146, 154
23, 25, 27,
39, 79
RIGHT OF FIRST OFFER
118
TONS OF AIRCONDITIONING
105
RULES, THE
21, 39, 53
TRANSPORTATION
58
TRASH HAULING
109
SEARCH AREA
28
TRIPLE-NET LEASE
100, 112
SEARCHING
32
TRUST
33
SECURITY DEPOSIT
127
TURN-KEY
101
SEEING THE SPACE
54
SEWER CHARGES
95
USABLE SQUARE FEET
18
SIGNING THE LEASE
157
USE CLAUSE
76
SPACE PER PERSON
18
USE OF SPACE
SPACE PLANNER
46
See
Programming
SPRINKLER CHARGES
95
SQUARE FEET PER
PERSON
18
V
VALUING SPACE
82
STAMPING PLANS
66
W
WAREHOUSE SPACE
45
STANDBY LETTER OF
CREDIT
134
WATER CHARGES
95
STARTING EARLY
24
WHERE TO LOOK
28
STARTING LATE
25
WORK LETTER
113, 114
START-UP
46, 128
STRUCTURAL WORK
112
YOUR ATTENTION NO
MATTER WHAT
38
SUBLEASE
87, 118, 126
SUBSTANTIAL
COMPLETION
80
TAX IMPLICATIONS
65
TENANT IMPROVEMENT
ALLOWANCE
60
U
Y
NEW YORK CITY HAS OVER HALF A BILLION
SQUARE FEET OF OFFICE SPACE. SO HOW DO
YOU FIND THE OFFICE THAT IS RIGHT FOR YOU?
THEN, ONCE YOU FIND IT WHAT WILL A
LANDLORD EXPECT FROM YOU? AND WHAT
CAN YOU EXPECT FROM A LANDLORD?
For all the dizzying possibilities, there is no shortage of people with advice and
opinions about how to approach New York City leasing. But how will you know
that the advice you’re getting is real, actionable, and useful? The answers can
be found in Getting to Lease.
Getting to Lease is a comprehensive guide to leasing office space
in New York City. It’s all here:
»»Search guidelines outlined
»»Financial terms simplified
»»Negotiating strategies planned
»»Lease conditions clarified
»»Construction variations detailed
Everything you need to know about finding and leasing office space
is here in one concise guide.
MICHAEL PINNEY HAS 16 YEARS OF COMMERCIAL REAL ESTATE
EXPERIENCE. AS BOTH A TENA NT A ND A BROKER HE HAS
NEGOTIATED FOR HUNDREDS OF THOUSANDS OF SQUARE
FEET OF SPACE WORTH MILLIONS OF DOLLARS IN RENTALS
AND SALES. HE HAS ALSO SUPERVISED CONSTRUCTION WORTH
MILLIONS OF DOLLARS.
MIKE IS A NEW YORK STATE LICENSED REAL ESTATE
SALESPERSON WITH THE SPECIALTY OF REPRESENTING
TENANTS SEARCHING FOR OFFICE SPACE.
WWW.GETTINGTOLEASE.COM