Despite getting advice from good lawyers, Fortune 500 chief executives often sign leases which cost much more than expected. This is serious, since an office lease is the second or third biggest expense for most companies. Moreover, leases often contain restrictions which can limit or disrupt your business.
The following advisory report is adapted from an article which Marisa Manley, President of Commercial Tenant Real Estate Representation Ltd. wrote for Harvard Business Review . Her views are widely discussed among chief executives, financial officers and other real estate decision-makers.
The first thing to understand is that when you negotiate an office lease, your landlord probably has the advantage. If you’re like most tenants, you negotiate a lease once every five or ten years and you put rent into the same category as other routine, current business expenses, weighing the monthly payment versus your cash flow.
The landlord is in a different position. Its business is leasing space, and buildings are its major asset. The landlord is highly motivated to plan for the long term and to write conservative leases that maximize the return on their assets. A good real estate lawyer can help protect your interests, but often isn’t equipped to advise on business points. Legally acceptable arrangements can be bad business deals.
Fortunately, if you’re savvy and reserve certain rights, you can turn an office lease into a tremendous asset. Here are some fine points about the most important lease provisions that protect landlords at their tenants’ expense.