Negotiating Your Office Lease

Following our exploration of office space options in “Options for Office Space” and the search process detailed in “Searching for Office Space,” we now focus on a critical phase in securing your ideal workspace: negotiations and agreements.

Once you’ve identified potential office spaces that align with your business needs, you’ll need to navigate the complex world of contracts and negotiations. This stage can significantly impact your company’s financial commitments, operational flexibility, and long-term satisfaction with your chosen space, so it’s worth paying close attention to.

In this article, we’ll guide you through the intricacies of negotiating lease terms for traditional offices, understanding agreements in coworking spaces, and finalizing contracts for flexible serviced office solutions. We’ll highlight key considerations, potential pitfalls to avoid, and strategies to ensure that your final agreement supports your business goals and protects your interests.

Traditional Offices

Starting with traditional offices: there’s a lot of negotiating to do. Many elements of traditional leases can and should be discussed and, where needed, adjusted before you sign off. Here’s what you need to know:

Term Sheets & Leases

Once you’ve found an office you like, your broker will draft a “term sheet” — a document that expresses your interest in renting the space, sets out your offering for rent, and proposes terms—though not all—for the final lease agreement.

Pro tip: your broker might recommend a simple term sheet, as this helps them get the deal done faster. This can benefit you, as the landlord can’t offer the property to anyone else while you’re negotiating. At the same time, an oversimplified term sheet may require more time as the lease is negotiated, potentially driving up legal fees. Be mindful of this.

Negotiating Lease Terms

When renting a commercial property, your lease outlines your responsibilities and protections. Ensure it includes everything you need or may need in the future from your landlord. Here are some things to consider in your negotiations:

• Asking Landlord to Do Work: You may need work done on the property. Be sure to have all the necessary work spelled out specifically in the lease — including wiring, FFE (furniture, fixtures, equipment), etc. This ensures clarity and avoids misunderstandings about the scope and responsibility of the work.
• Specify Free-Rent Dates: You may negotiate days of free rent based on the need for repairs, move-in dates, etc. Clearly outline these dates in the lease to ensure you aren’t paying for unusable time during property adjustments or move-ins.
• Leverage Tenant Improvement Allowance: Wherever possible, see if your landlord will contribute to a Tenant Improvement Allowance—a budget for improvements to the space, especially in areas where your work will raise the space’s long-term value. This can significantly reduce your out-of-pocket expenses for necessary upgrades.
• Custom Renovations: Determine what, if any, build-outs, design, or structural changes you are allowed to make and include any and all permissions you’ll need. Ensure the lease specifies who is responsible for the cost and maintenance of these changes.
• Ask for Furnishings: In more renter-friendly markets, landlords may be willing to cover some furnishings to get you in the door. Some spaces may even be offered fully furnished. This can be a significant cost-saving benefit if you need a ready-to-use office.
• Negotiated Security Deposit: Security deposits vary greatly and often depend on your financials. A standard deposit can equal 3–6 months of rent, depending on the terms and concessions you negotiated. Aim to negotiate this amount based on your creditworthiness and the lease terms.
• Termination Options: The landlord may push for a high cost of breaking the lease, usually on longer-term contracts. Negotiate that down wherever possible. Clearly outline the terms for early termination to avoid excessive penalties.
• Sublet & Assignment: Should you want to defray costs or move out before your lease ends, you must negotiate your options beforehand. Some landlords may restrict sublets or find ways to slow the process. Ensure your lease includes flexible subletting or assignment clauses to accommodate future business changes.

Sneaky Lease Terms to Avoid

Over many years in the market, we’ve seen several lease terms that may put you at a disadvantage. Be aware if you see any of these in your contract:

• “Specified broker for subleasing”: Things change constantly, especially for fast-growing companies and competitive industries. If you realize that you have rented more space than you need or need to reduce rental costs in the future, subletting some or all of your space might be your best option. However, some landlords may insist that you use their broker to find a subletter, which can delay the process and result in you continuing to pay the full rent while they focus on filling other vacancies first. If you encounter this requirement in your draft agreement, it’s important to negotiate and push back.
• “Specified vendors for repairs”: Some landlords may stipulate that you use only authorized vendors for repairs on your space. Sometimes, they do this to ensure that only reputable companies work on their buildings, which is understandable. However, in some less-ethical cases, landlords may want to send business to associates of theirs who can charge you higher prices with impunity. In the worst case, the landlord could receive a kickback from these vendors. In your lease negotiations, give yourself the flexibility to shop for your own services. The way to do this is to agree to consider their people first but specify that their preferred vendor must offer a competitive bid. You should reserve the right to go with another vendor.

Breaking The Lease

It’s the negotiation no one wants to have: “We gotta get out of here,” but sometimes it’s inevitable. Circumstances change rapidly, and a company needs to end its lease.

Paul Simon said, “There are 50 ways to leave your lover,” but there are far fewer ways to leave your office—actually, just three:

• Option 1—Termination: Hopefully, your lease has a termination option built into it, and you negotiated well, as noted before. Pay the landlord, satisfy whatever other terms were agreed to, “drop off the key, Lee,” and you’re free.
• Option 2 – Sublease: Again, hopefully, you’ve negotiated the ability to find a subletter to take over your lease. Work your network and find another company that would be happy to take your office and will be approved by your landlord. This can require considerable time — the process takes three months on average, all while you continue to pay your full rent. You may have to charge less than you’re paying to get someone to come in, and you can expect to lose 10%–20% each month on the deal. But it’s better than being responsible for the entire rent.
• Option 3 – Breaking your Lease: The third and riskiest option is to break your lease. Remember, a lease is a binding legal document. So if you just pack up your stuff and vacate, your landlord has the right to come after you for every outstanding payment owed through the end of the lease. Still, you might have some options:
  • Breach of Contract: If you’re leaving because of an unresolved issue with your space (or you can make a case for one), you can claim a “breach of contract” from the landlord. However, this must be a legitimate issue, and you’ll likely be asked to prove it in court.
  • Negotiate: If you’re renting in a desirable district, especially if rents have risen recently, your landlord may be willing to let you out of the lease before it’s up, especially if they can find another tenant willing to pay more than you. Expect to stay and keep paying for as long as that process takes.
  • Lump Sum: Sometimes, you can offer to pay a lump sum to be released from your lease. Your landlord might be tempted to choose a large single payment now rather than getting the full amount over time and having to wait for it.

Bankruptcy: While not a great option, filing for bankruptcy can end your responsibilities to a commercial landlord. Still, it can vary depending on the applicable law.

Coworking Offices

Once you’ve found a coworking office location that’s best for your team, what happens next depends greatly on the following factors:

• How large your team is and how much space you need.
• How much customization you’re requesting.
• If your business requires additional security or a separate IT network.

The sales team representative you’re working with will consider these requirements while drafting your agreement for your private office. 

When dealing with a professional provider like Dreamplex, with years of experience, the process is quick and generally much easier than a direct lease with a traditional landlord. 

They recognize that most companies want some customization, for example to support hybrid work schedules, and are prepared with a pre-set menu of options and upgrades for larger tenants.

However, larger spaces within a coworking property may be in short supply. If the building you’d like to be in doesn’t have ample room, it could be months before space opens up.

What To Remember

There are three things to remember when working with a coworking company during the agreement phase:

• Fee Build-Up: Coworking companies almost always pay a traditional lease for their space and then make a profit by charging more per square foot than they are paying the landlord, mostly to cover all additional fees like fit-out, utilities, (enterprise-grade) Wi-Fi, technical and security equipment, shared meeting rooms, on-site team members, etc. 
• Density: Coworking companies make the most money when they have the highest density, and setting aside more space for a single member limits their ability to accommodate more members. Usually, this is balanced out with more and bigger shared spaces, so even a small company can have a big boardroom, event space, and a stunning pantry. 
• Customization: While professional operators like Dreamplex are set up to customize space, altering space is usually bad for coworking businesses, as it means more work and slowing down the process. 

If you’re looking for a large section of their space and/or need a lot of customization, the costs will mount quickly, as will the time needed to prepare the space. These costs will be folded into your monthly payment.

Like any negotiation, you can push back on certain elements, although you will likely have to compromise in some places. The sales teams at a coworking company have some flexibility, but the tight margins in the coworking industry only allow for so much wiggle room.

Prepare for Growth

If you’re taking on a dedicated space on a coworking floor, you’ll want to project your company’s growth as best you can. Coworking companies have an inelastic supply, so if you quickly expand past your office’s capacity, you’ll only be able to add to your footprint if there’s unused space available.

Similarly, if your company happens to shrink, you could be on the hook for more space than you need. Remember that while working with a coworking space is much easier than traditional commercial offices, you could face the same inflexibility if your needs change and you’re locked in for a year or more.

Accordingly, in the negotiation phase, you should inquire about subletting and penalties for breaking your coworking agreement. 

For some private offices, a coworking space may only require a deposit from last month and 30–60 days’ notice if you plan to leave. But the larger your company, and the more space you take on, the more stringent you can expect those end-of-contract policies to be.

Flex Offices

Once you’ve found an office, your representative will work with you to finalize your agreement. As in coworking, the process is fairly standardized. 

Your agreement will be with the flexible space provider—not the landlord—and the heavy negotiations have already been done. However, you’ll need to finalize a few elements.

• Minimum Term Length: Flexible spaces are just that: flexible. But the company you work with will still want to specify a minimum length of stay—starting from 3 months and up—to ensure all costs are covered.
• Renovations: If you need to make changes or fixes, now’s the time to discuss them. 
  • In some cases, you may be able to request that improvement costs be worked into your monthly payment — covering those expenses over time rather than all at once. 
  • Preferred treatment regarding renovations will be determined by length of stay and after providing positive company financials.
• Add-Ons: If your flexible office provider includes ongoing internet service, cleaning, maintenance, snacks, or other services, you should be in good shape. If you need other services, you may be able to negotiate them into the agreement.

Preparing for Growth

One of the great advantages of working with a flexible office company is that growth is always a good thing—and an easy challenge to solve.

Because you’re not locked into a multi-year term like a traditional lease or even a year-long agreement that coworking might require, you can upgrade just as soon as you identify suitable space in your market.

Your rep already knows your needs, your monthly agreement can be updated based on your new space, and you can be in your new home in a few days.

If the inverse is true, the same process applies if you have to downsize. Flexible really means “Flexible.”

In Summary: Negotiating Office Leases

As we conclude this deep dive into negotiations and agreements, it’s clear that this stage is crucial in securing an office space that truly serves your business needs. 

Whether you’re finalizing a traditional lease, agreeing to terms in a coworking space, or setting up a flexible office arrangement, the decisions you make here will have long-lasting impacts on your company’s operations and bottom line.

For an even more detailed exploration of these topics, including expert insights and practical tips, don’t forget to download our full whitepaper, “How to Find & Manage a Private Office.” This resource offers invaluable guidance for navigating the complexities of commercial real estate.

Stay tuned for our final article in this series, “Moving In and Managing Your Office,” where we’ll cover everything you need to know about transitioning into your new space and optimizing it for your team’s productivity and comfort.