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 Once the tenant and its project team have set their assumptions and expectations for the growth of the tenant's business, they will be able to know how much space should be sufficient. (See: Other Consultants for Tenant) But everyone knows that an estimate is only just that, and assumptions as well as circumstances change frequently. This is why savvy tenants, in negotiating their leases, try to maintain their flexibility by negotiating for options to expand their existing space and/or to extend the term of the lease. Having the ability to remain in the space or increase the amount of space tenant may occupy under the lease will allow the tenant to expand while avoiding or limiting the expense of moving or refitting space. In addition, it will help tenant to quantify the rental expense over a longer period of time, which is helpful for tenant's own internal accounting and cash flow purposes. Landlords find that it is often in their best interests to retain good tenants: they may be motivated by cost savings (brokerage fees, refitting of space) as well as market conditions. While options for additional space or options to extend the term of the lease can be structured in a variety of ways, tenants need to be aware that they can easily turn into unworkable traps. Tenants need to understand the mechanics and timing of the process of exercising the options, as well as the way in which the rentals for the additional space or the extended term are established. Often, the new rentals are set at some variation of "fair market value" (which may or may not be specifically defined in the lease). The lease should contain some mechanism (for example, the use of a disinterested third party expert) for settling disputes between landlord and tenant as to what exactly fair market value means in their specific situation. While options allow the tenant to grow its business, sometimes a tenant will need to contract its operations, or relocate to more suitable space. That is why provisions under which tenant may shorten the lease term or transfer its rights to the space should be carefully negotiated. In this way the tenant can assure itself that the lease will not seriously compromise the way the tenant needs to operate its business. While it is understandable that the landlord wants to know and exercise some control over who will be in its building, nonetheless the assignment and subletting clauses (two significantly different concepts) of the lease must keep the landlord's control reasonably reined in. This is particularly the case with the timing of the decision-making process with respect to the proposed subtenant or assignee, and the nature of the landlord's requirements as to who is a creditworthy subtenant. In addition, if the tenant does sublease the space, the tenant will in many ways be acting as a landlord. Accordingly, the tenant "as landlord" must be careful to protect itself in the sublease with its subtenant with respect to its liabilities to its own landlord as a result of its acts as well as those of its subtenant. The tenant's leasing-specialist lawyer should be able to do just that.  |
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