When I started listening to Earth, Wind & Fire’s ‘September,’ I never thought that I would one day be writing about its relationship to real estate and office leasing, but here I am. Specifically, the first line, “Do you remember…”
Office tenants spend a ton of time and money negotiating their leases for office space. They have countless meetings, conference calls, and email correspondence, over many hours and weeks, to review the document and negotiate all its points with their attorney. This all costs real dollars and cents. For many people, this is where they stop paying attention to the document. It ends up as a paperweight, a drain on their cloud storage, or a filler in the file cabinet.
But, there is so much valuable data in the lease! I like to call it found money. If you forget about the information, how can you access it when you need to? Here are the key dates you should remember to help you optimize your lease:
A.) Lease expirations: As you know by now, time is power. If you have lost track of time and ended up in a situation where you have little or no time left on your lease, then you have, unfortunately, lost much of your negotiating power, or what I call, leverage. After all, the closer to lease expiration you are, the more challenging a relocation becomes, and the fewer concessions the landlord must give to maintain your tenancy. Additionally, you could end up paying extra fees if you overstay your welcome, in the form of holdover payments. Basically, you have overstayed your welcome and must pay some multiple of your rent every day you stay in your space. Do not let this happen to you!
B.) Right to terminate or renew: You want flexibility, in the form of a right to cancel your lease early, if the market, or your business, has changed, or both. But, what good is that right if you do not track when the window opens or closes? It is often the case that there is a day that your right starts and finishes, and if you don’t do something between those two times, the opportunity is lost.
C.) Security burndown: This one drives me nuts when I review the lease for someone with whom I have not worked before. You are literally leaving money on the table if you do not keep track of this. In summary, the burndown allows you to reduce your security deposit over a specific period, but if you do not remember to ask for it, the landlord will not give any money back to you. I’ve seen tenants with hundreds of thousands of dollars that were meant to be returned, but tenants either forgot that they had a burndown in their lease, or when they were supposed to ask for the reduction. Additionally, there are instances where, if you do not contact the landlord in the given time, the burndown right expires. Literally thousands of reasons why this key date should be acknowledged and remembered.
D.) Access to tenant improvement dollars: There are some cases where the landlord will have agreed to give additional money to a tenant for allowed-work in their space within a defined period. It may even be converted to free rent if the tenant has no use for the TI (Tenant Improvement). But, as we know by now, if you don’t ask, you are certainly not going to get it, so make sure to watch the calendar for when these monies are accessible to you.
E.) CAM reconciliation dates: You are going to care about this one specifically if you are paying Direct Operating Expenses. In short, it means your proportionate share of the expenses of the building’s cost to operate the building over the base year of the lease. If you have 10% of building space, you pay 10 cents for every dollar of expense sover the base. However, you often get estimated expense bills at the beginning of the year and then at the end of the year, and there is a comparison done between estimated and actual numbers. Make sure to monitor when the reconciliation occurs because you may have overpaid or, the landlord has included expenses that should not have been billed as an operating expense. This is the opportunity to get some money back from the landlord.
F.) The date of substantial completion: The clock starts ticking on your lease when you get the keys. A gray area is when the landlord does construction and then delivers you the keys. In this case, the clock starts at that point (depending on lease language, of course). This is a crucial date, so you can then figure out the other dates above. Without this, a lot is unclear. P.S. You should ask for a substantial completion letter, so you never forget the date, instead of referring back to when the lease was signed, which is often quite confusing when understanding all the other key dates that are in the document.
G.) The anniversary date for escalations: You have agreed to pay increases annually and want to make sure you pay them on the proper schedule. Given that increases compound and are cumulative, paying even six months early can add up to a lot of money over a ten-year lease term. If you have agreed to pay 12 months after lease commencement, make sure that you do not end up getting them any earlier. A harmless bookkeeping mistake on behalf of a landlord could end up costing you thousands if you don’t take note of when those increases are supposed to start. As you can see from the summary above, there are a ton of key dates to remember in your lease. It’s in your best interest when you have office space to remember them to avoid leaving tens, if not hundreds, of thousands of dollars on the table.
If you have any questions about your lease and the key dates for your company’s real estate, don’t hesitate to contact me.