Over the past two years, uncertainty has become more frequent in business. We are now experiencing high inflation and rising interest rates worldwide. While there is optimism in the business community that inflation has peaked and will subside in the next 12 months, it is too early to know how things will play out. Given that, it makes sense for business owners and executives to negotiate flexibility into their leases whenever possible. 

Regardless of business type, there are a couple of lease clauses that can provide a business with added flexibility during the lease term:

• Option to Contract the Premises Size
• Option to Terminate the Lease

An Option to Contract the Premises Size can help offset your real estate costs during difficult business times. Regardless of whether your company uses office, warehouse, or retail space, having the ability to reduce the size of your premises during the lease term is a big advantage that will result in savings on the payment of rent, operating expenses, and taxes. Don’t forget to include a reduction in parking stalls as part of your office space downsizing, if applicable.

The Option to Terminate the Lease has been around for many years and gives the tenant the opportunity to leave a building early if their business changed and they needed more or less space. It is also a useful clause that allows businesses to capitalize on changing market conditions during the middle of their lease term. Today we add a new element into the mix pertaining to office space occupiers―working from home. If your staff have the capability to work remotely, having the option to terminate the lease early could be a major cost-saving opportunity if there is a significant downturn in the economy. 

These types of lease options are structured in a variety of ways depending on the type of space, landlord, and market conditions. ITRA Global has principal-level advisors that can provide you with expert guidance about options in your market and how to obtain them from your landlord in lease negotiations. If your company has one or more leases expiring soon and you would like to explore adding flexible clauses into your lease negotiation, please CONTACT US.  

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Article Submitted by Wayne Teig, ITRA Global l Minneapolis-St. Paul, Minnesota USA