The prospect of relocating an office can be daunting enough without having to worry about the contingencies and unanticipated difficulties that often arise in the course of relocation. Structuring a lease in order to provide necessary leeway in the event the move doesn’t go exactly as planned is always good practice. This post highlights some of the issues that often come up in the course of negotiating a new lease and how – from both the tenant’s and the new landlord’s perspective – to fairly and reasonably navigate them.
First and foremost, as a tenant, it is imperative to start the process of reviewing your options well in advance of the expiration of your current lease. This will give you plenty of time to test the market to determine if moving makes the most sense (if staying in your current space is indeed an option). As part of this process, it is important to review your current lease to determine your obligations in the event you do not stay in your current office space (e.g., removal and restoration obligations, liability in the event of a holdover, etc.). These terms may end up having a significant bearing on your ultimate decision of whether to stay or leave.
If it is determined that you will be relocating, the questions of “who” will be preparing the space for your occupancy (and who will be paying for such preparation) and “when” the space will be available to you must be an integral part of the discussions with your new landlord. An enticing feature of moving to a new location is that typically you will be getting an updated/renovated space paid for in large part by the landlord (however, the dollar amount per square foot for such renovations is market-dependent). Often, the landlord will also perform the renovations and provide a “turnkey” delivery of the space with all renovations complete (although it is worth keeping in mind that this relinquishes the majority of control of the budgeting and final product of the renovations to the landlord). In any case, the question of “when” becomes extremely important because it will be up to your new Landlord to either deliver the space to you prior to the date your current lease expires or with enough time for you to complete your renovations before such time. It will be important that you have recourse if your new space is not ready by then and you are forced into holdover status in your current location. A reasonable solution to this issue is to negotiate some financial remedy that becomes effective on the date your current lease expires. The best-case scenario is that the remedy is directly tied to the amount of your liability in the event you hold over. Another reasonable solution is a day for day rent credit for each day delivery is delayed.
From the landlord’s perspective, it is in your best interest to deliver the space timely so that you can begin collecting rent, so it is likely not an issue to build in some protection for your incoming tenant. However, you will likely want to make any such protections subject to delays caused by the tenant or other third parties over whom you have no control (e.g., the building department). The matter of which party bears the risk of other unforeseeable events (e.g., force majeure events or the holding over of any existing tenant/occupant of the new space) delaying the delivery of the space is typically negotiated as well.
These and other contingencies should be discussed in detail with your attorney (and broker, if applicable) at the earliest possible juncture so that they are not overlooked.