“A Property Manager’s Guide For An Office Lease” written by Mike Marko
Looking for guidance on creating a better office lease?
You have probably heard the horror stories about bad tenants, or worse… poorly written office leases that make it difficult to remedy the problem tenant. Often the liable party is often the property manager.
As a liaison between the property owner and the tenants, property managers must ensure that the interests of both parties are protected. This is done by producing quality office lease agreement.
In this article, we will discuss the different elements that make a good office lease agreement.
Essential Elements of an Office Lease
The key to a successful negotiation of a commercial lease agreement is having a clear-cut office lease agreement. If it is your first time to be involved in commercial real estate, then it can be a little overwhelming. Commercial property management is much different than residential and a commercial lease can be long and full of unfamiliar terms.
The good thing about a commercial lease though – it’s negotiable. Parties are free to put forth their terms and negotiate conditions that are best suited for their business to grow and prosper. It is only when an agreement as to the terms of the commercial lease is reached, that it is signed.
But what is an office lease and why is it needed?
What Is an Office Lease
An office lease is a written document between the property owner/manager and the tenant of a commercial business. The office lease explains the tenant’s various rights and responsibilities. The office lease specifies the right for the business to have exclusive possession of the office space, for conducting business for a specific period and conditions, in return for payment.
What to Include in an Office Lease
To become the best commercial property manager, you need to know the basic content of an office lease. An effective office lease starts with identifying: who, where, when, what, and how. The answers to these questions can then be considered the building blocks of any successful rental agreement.
The Parties Involved in the Lease Agreement
Every lease agreement must clearly state the parties and responsibilities of those parties who are involved. Lease agreements are usually between the landlord or agent and the tenant. The names of all parties must be included, as well as their contact information and addresses.
Identification of the Property
The complete address should be stated in the lease clause of the agreement. A property manager should be able to complete this clause for the tenant. In some cases, a description of the property to be leased, is included as well.
Term of Office Lease
The agreement should state the exact date the lease begins and the exact date the contract will end.
Amount of the Office Lease
It’s essential to include the full amount of rent in the commercial lease agreement. For more clarity, indicate the due date for the rent, the preferred method of payment, and any late payment terms and charges if needed.
Acknowledgement of the commercial lease agreement is when both parties have reviewed the agreement and signed and initialed every page of the agreement. It’s important to include the acknowledgement on the agreement as this is the part of the contract that make it legally binding. Without the signatures, the agreement will be worthless. Once signed, the property manager must provide the tenant a copy of the agreement.
Important Clauses in an Office Lease
One of the common mistakes property managers do is the failure to specify the rights and responsibilities of each party during the tenancy.
This mistake can eventually lead to problems and misunderstandings in the future for both parties, so it is essential that these details are fleshed out in the office lease.
Start with providing the basic information of the parties involved, that includes:
- The full names of both the tenant and the property manager.
- The lease amount.
- The start and end date of the lease.
- The location and the signatures that will bind the agreement.
Security Deposit Clause
A property manager should require the tenant to put up a security deposit that matches the monthly rent. Listing the amount in the contract, and making sure this deposit paid prior to the tenant moving in, should be a condition of rental of the property.
The security deposit from tenants must follow the law depending on the location of the office lease. This must be done properly because security deposits can be a problem if not handled correctly.
Maintenance of the Premises
The lease should specify the roles and responsibilities of all parties to the contract. It is common that tenants are required to maintain the premises.
Best examples of this are:
- Abiding the noise control rules. No noise between 10PM and 7AM
- To not change the locks without approval.
- Keeping the premises clean by throwing their garbages.
- To not destroy, deface or remove property of the landlord.
Most importantly, all requirements of the tenant and the property manager should be spelled out in the lease agreement.
Warning of Concealed Defect
If your property contains a concealed defect you need to be upfront in reporting this to any tenant renting the property. Concealed defects that needs fixing should addresses with a repair schedule and presented to the tenant prior to moving in. If the property manager fails to do, this can be grounds for the tenant to file a legal case for not representing the property correctly. All defects must also be fixed before the tenant moves in.
If tenants are interested in having a friend or business partner sublet the office, a clause regarding this must be included. Rules and requirements need to be set forth for subletting and indicated in this section of the commercial lease.
However, property managers have the right to refuse subletting. If this is the case, you need to be clear and concise that subletting is not allowed and it should be indicated in this clause.
The property manager has the right to terminate the agreement between the parties if the tenant has broken any rules stated. Additionally, all parties to the lease can push to terminate the lease for reason. Being specific and concise in detailing termination of leases is important in helping to avoid any legal misunderstandings in the future.
However, if termination of the lease turns to an eviction process know the following. Evictions can be tricky. There are proper procedures that must be followed, or risk legal action to resolve the eviction. It is highly recommended that you consult with a commercial real estate lawyer before evicting a tenant to make sure it can be done effectively.
After the Tenant Leaves
There are different reasons why a tenant might leave. It can either be the end of a lease agreement, an eviction, a free will to leave the property or simply the end of the contract.
Make sure that your commercial lease details and addresses any property left, changes or alterations to property that need to be corrected, The commercial lease should specifically state any property left after abandonment entitles the property manager “to remove and destroy, store, sell or otherwise dispose of, such property” without any liability to the tenant.
After tenants move out it is proper to inspect, clean, and fix any changes to the property to make it prepared to be rented again by a future tenant. When completing repairs from previous tenants you should keep a detailed record of costs so you can make deductions from the security deposit, prior to returning it to the commercial tenant that has vacated the property.
After all the repairs, cleaning, and everything is ready for a new tenant to move in, a good property manager should have a marketing plan to ensure a new office tenant is ready to move in.
Office Leasing Terminologies
Before entering in the commercial real estate industry, it’s wise to get to know the various terms upon leasing a rental space. These terms are relative to property management and rental situations.
Here are some common office and commercial leasing terms and their general explanations.
The person granting the lease. The property manager can be appointed as a lessor by the landlord.
The person leasing the place or the tenant.
Common Area Maintenance (CAM)
The term that describes the cost for maintaining areas in a building which aren’t directly leased but are a common responsibility of all tenants in the building. Areas like the lobby, elevators, staircases, building storage areas etc.
Fully Serviced Lease
A commercial lease in which the rental payment includes costs for all other services, such as utilities, maintenance and, lawn or snow removal.
A lease that includes the landlord agreeing to pay for all the common expenses for the building.
A lease which includes the square footage costs, CAM costs and, all other ownership expenses can make up the square foot cost for the Net Lease.
Double Net Lease
A lease where in addition to rent for the office space, taxes and insurance expenses are included in the payment.
Triple Net Lease
A lease where in addition to rent for the office space the payment includes all taxes, insurance and, maintenance cost.
Gross Square Foot
The total square footage of the office being leased. This is normally calculated by taking the entire sq/ft of the building and dividing it by all office space tenants to get a gross sq/ft cost.
Abbreviation for “heating, ventilating and air conditioning”.
The improvements to the office to make it usable for the tenant. You should include costs to remove or return the property to the original condition when the commercial tenant vacates the office space.
An office that is ready to occupy and needs nothing for the tenant to occupy the office for rental. Normally furniture, phones, and other everyday office furniture is included for the tenant.
Sublease or Subletting
An agreement between the lessor and lessee to allow someone else to use all or part of the space.
Final Thoughts on a Property Manager’s Guide for an Office Lease
A poorly written office lease can cause you a lot of problems. There are a lot of opportunities to have poor tenants in your office space, and your lease is your last line of defence.
In this article, we discussed the basic information all property managers should know to produce a quality office lease agreement.
A good office lease protects the interests of both the property manager and owner, as well as the tenant. But this can only be done if the lease contains the right information. These are:
- The basic information about the tenancy: the parties involved; the property to be leased; the rent; and the duration.
- Important clauses such as: basic clause; security deposit clause; maintenance and repair clause; subleasing clause; and termination clause.
We then further enumerated different terminologies that are often found in an office lease and explained each one. These terms are relative to property management and rental situations.
If there’s anything you need to know with regards to office lease, share it with us in the comments section below.
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