Change your Terms on your Office Lease Agreement

Office space tenants often face the challenge of living with leases negotiated under market conditions different than the current ones -- a problem inherent in the office market's cyclical nature and typical lease terms of three to 10 years.
Lead times to acquire land, obtain governmental approvals for development, and design and develop a building can take 18 to 36 months or longer.
During this process, the market is being affected by supply and demand. In periods of excess supply, tenants benefit from downward pressure on rental rates and increased concessions. The reverse occurs when demand is strong.
An oversupply of space is the most favorable market condition for tenants, but with proper timing, strategic thinking and focused implementation of a plan, tenants can also benefit from a landlord-driven market of higher demand.
Planning for the future
While tenants should consider their future expansion needs, it is vital they spend time during negotiations on how they will be able to reduce their space. Many tenants make the mistake of believing the market they're in will go on indefinitely, and they negotiate from that position. But thought must be given to as many contingencies as possible.
When markets experience downturns, tenants must have flexibility in their leases to ensure they can reduce their space when necessary. Rent is generally a tenant's second-highest expense behind personnel.
There are two preemptive ways to structure a lease that have proven effective. First, tenants should consider having the ability to give back a percentage of their square footage or a fixed square footage during the lease term. Landlords often are hesitant to agree to this. But they are typically more receptive to the idea if:
The returned space is leasable.
The tenant provides ample written notice of its intent to downsize.
The tenant shares the cost to reduce the space.
And the ability to give back space is limited in scope -- such as after a certain amount of time or only once during the lease term.
This strategy requires that purposeful design of the space be accomplished up front to limit cost and disruption.
Second, a favorable sublease-
assignment clause should be part of the lease. This language allows a tenant to lease or assign their space to another tenant during the term. Key points to include in this section are:
The landlord's approval rights over the sublease tenant should be reasonable, specific and not arbitrary.
Structure a short approval process by the landlord.
An assignment to a tenant-related entity should not require landlord approval.
The use clause in the lease should be broad enough so a wide range of tenants can qualify to sublease the space.
And ensure the tenant can lease the space at whatever terms are necessary and not subject to landlord-imposed artificial rental rate requirements.
Already signed
Often, tenants find themselves needing to reduce their space while their leases don't say how to do so. In these cases, several strategies have proven effective.
It is critical from the beginning to establish open and timely communication with the landlord and property management team. Experience has proven good communication to be the key in the tenant-landlord relationship.
Second, present a plan to the landlord that shows a well-thought strategy. Merely saying "we need to downsize tomorrow" typically doesn't yield the desired results. It's more effective to state the specific size reduction, when it needs to occur, why it's necessary, etc.
Third, if there is a short period left on the lease, it can be beneficial to landlord and tenant to reduce space in return for extending the lease's term.
Fourth, tenants who show flexibility in their requests often find more receptive landlords. Relocating within the building, adjusting the timing of the downsize, keeping the same square footage and restructuring the rent are a few possibilities to explore.
Wrritten by:

Russell Noll, CCIM, CPM, is managing director, Tenant Advisory Services in San Antonio, for Transwestern, a nationwide commercial real estate firm with offices in San Antonio and Austin.

For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com