8 Lease Expiration Tips

Presented by Mark Rauch

"The brain is a wonderful organ; it starts working the moment you get up in the morning and does not stop until you get into the office."-Robert Frost- 

Is your office lease 12 to 24 months from expiration?  If so, it's time to start thinking about your options.  Should you renew? Relocate? Contract? Expand? Purchase? Explore a different geographic location?

You don't want to be cut short.  The leasing or purchasing process has very many components.  In addition, having time on your side will work in your favor when negotiating the overall economics of the transaction.

If you start the negotiation process with two years to spare you'll have more than enough time to leave the table and let things cool down if they aren't going well. Your landlord will also know that you have a long time to find a better option.

Having negotiated hundreds of office space transactions, it is my opinion that the best way to manage the process is to sit down with your Tenant Representative at least 18 months prior to your expiration date.  Depending on the size of your office space the lead time could be longer or shorter. 

Here are 8 thoughts that you and your team should consider when it comes time to think about your office space:

1) Assess your space. Before making any decisions, see how your space ranks relative to the personality of your company, efficiencies, layout, geography, image, employee morale, economics.  Is your company thriving and happy or dull and boring?  Is it productive?  Can you attract talent based on the energy of your office space?  If so, it's probably worth staying. If not, it might be time to consider a change which can include a relocation or a renewal with new tenant improvements.

2) What are your future objectives? A space in Downtown Los Angeles doesn't make much sense if your employee base is in the San Fernando Valley or your executives are in San Bernardino.  Space that is too big may work if you see expansion in the cards but will be an economic drain if not.  Conversely, space that is too small will inhibit growth of your company. Are you better off taking a smaller space in one geographic location and a larger space in another location?  Do you need to be in a trophy high rise building with an impressive image or would saving money by being in a different type of building suffice? How important is it to be close to amenities such as restaurants, banks or hotels?

3) Perhaps sublease space is the way to go.  If you are thinking about a move to a new market consider sublease space.  Subleases are typically shorter with attractive economics.  It's an excellent way to get your feet wet in a new location.  There could potentially be the added cost of a double move however if the space works, you could renew on a direct basis at the sublease termination or do a "blend and extend" up front.

4) Negotiate Expansion Rights.  Look for smaller space and negotiate Rights of First Refusal to expand into adjacent spaces. That way, you only pay rent on the office space you use today but have the ability to grow without having to sublease your space. 

5) Negotiate Extension Rights.  There are two ways to get ten years worth of occupancy.  One option is to sign a ten year lease. The other is to sign a five year lease with a five year option to extend. The latter might cost you a little more over ten years but, if you choose to move out after five years, it will save you money.  On the other hand, there are benefits to signing a ten (10)  lease including more concessions, more tenant improvement dollars, a lower lease rate.

6) Renewals deserve tenant improvements and free rent too.  What would your landlord spend to hold on to you?  When it comes renewal time make sure your tenant rep asks landlord to sweeten the pie.  You will be surprised.

7) Millennials live for 24 hour cities.  If you're not a millennial consider taking a lead from them.  When looking for a dynamic location for your next office space, look beyond the usual suspects.  Encino, Agoura and Torrance are still great places however young workers love The Arts District, Culver City, Hollywood and the NOHO District of North Hollywood.  Many offer great work forces, good quality of life, awesome restaurants and really cool creative space options.

8) Staying is usually cheaper.  Before rushing out to look at relocation opportunities, seriously consider the cost of moving.  Even if you save a few dollars in rent, the cost of moving, downtime and the other ancillary costs of a move might add up to more than you expect

Call me to discuss proper timing, the process and opportunities even if you have multiple years remaining.  213-430-2469 

Please contact me to discuss your office space needs. 

Nothing contained herein is to be considered legal advice.  Always seek legal advice when evaluating any legal document.