lease flexibility

businessmen-office-building-blurred-motionOne of the indexes that we’ve frequently used to measure performance is lease flexibility. While signing a long term lease is a mutually agreeable contract for both tenants and landlords, we understand that from the tenant’s perspective, the more flexibility that a tenant can achieve with their lease, the better.

We look to secure termination rights, expansion provisions, partial give-backs, and rights of first refusal. All of these items are measured to ensure that the tenant’s strategic objectives are being addressed as part of the lease terms.

Termination rights are exactly what they sound like. The right, with some notice period, for a tenant to terminate the lease priory to the natural maturity date. There is typically some financial consideration from the tenant when activating that right, and the value of that consideration is established when the lease is drafted.

Expansion provisions can work two ways. This is essentially a “must-take” at a specific point during the term. This requires the landlord to hold space off the market and the tenant knows that the space is waiting when the strategic plan requires.

Partial give-backs are essentially the opposite of expansion rights. They give the tenant a right to give back a portion of the space at a pre-determined date. That way tenants can reduce their footprint if configurations change or head counts reduce.

Rights of first refusal provide tenants with ongoing protection from contiguous space getting leased up without proper notice. If the tenant has a ROFR, the landlord must provide proof of a bona fide offer from a third party. The tenant then has the opportunity to accept the same offer or pass.

As with all lease points, these issues are negotiable. The more leverage tenants create through an active bidding process, and the more desire tenants create for their tenancy, the more likely they are to secure these concessions from the landlord.

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