The Dirty 4 Letter Word in an Office Lease

Gregg Cohen Office Leasing

The lease is a contractual obligation, written by landlords, for landlords, and it is of utmost importance to understand your rights and your exposure. It’s why I say it’s crucial to have expert real estate advisory, as well as legal representation. Amongst the many potential pitfalls, there is one clause that pops up from time to time that can really be a killer. What is it, you ask?

It is the demo clause. Demo is short for demolition and it is written with the landlord in mind, very much in line with how the lease is written in its entirety. Stated simply, it provides the landlord with the right to relocate or terminate your lease if they decide to redevelop the property, demolish, or sell it. Here are the main reasons you should care.

Potential for Massive Disruption

Your business is flowing, your team is working on multiple projects, you’re about to pitch a large client, and then suddenly you find out you must allocate time to look for a new office. You have to stop what you were doing and focus energy on your real estate that will help keep you, your staff, and your clients happy and comfortable. Time away from revenue-producing activities is a pain in the you-know-what. And, we haven’t even talked about the logistical nightmare of having to change the address on all your documents, your website, and your business cards,  as well as making sure your furniture fits in the space.

The Financial Cost

Imagine if you signed a lease when the market was soft, prices were low and you locked in a rent that was extremely favorable. Now the market has moved higher, and you are told “sorry you cannot stay.” Now you must relocate your firm and you must sign a lease from a position of weakness. You have less leverage, and it’s going to cost you more out of pocket!

Impacting the Sale of Your Business

Let’s say your business is based upon a certain customer base, or driven by a pool of talent, that is in one specific region. What if there was real doubt about the staying power of the business if relocation was necessary? Or even more simply put, what if the business did not make a profit based upon future higher real estate costs which affected the value of the business in the eyes of a buyer?

So, how do you lessen the potential impact?

Negotiate Relocation Costs

Make sure that, if in fact there is the possibility of the demolition clause being triggered, that you limit out-of-pocket relocation costs. This includes everything from moving, furniture breakdown, and set-up costs, to IT set-up.

Negotiate the Notification Period

The worst thing that could happen is that you are rushed to relocate. Not only do you want to reduce the pressure you have to decide, but time is your friend in the process. Better to relocate on your terms, with the opportunity to wait for the right space, than to have to take what is available and feel like you are negotiating from a position of weakness with a deadline rather than a want, and you can wait for the best opportunity.

Negotiate Termination Rights and Business Disruption Costs

Finally, if the option’s available in the landlord’s portfolio, you should be able to get out of your obligations. Remember this was brought upon you, not something that you wanted. Things had been running smoothly and you were not thinking about real estate, but now you must. You should have options, and termination should be one of them. And, if the options available are not for you, you need the right to decide, as well as have the right to recoup some of the potential disruptions it is creating for your business, namely lost productivity.

My job is to help you think about all the things that could go wrong that most likely never will. I am here to protect you and your business. Hopefully, this explanation of the demolition clause gave you some food for thought. Any other questions, please feel free to contact me here.

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