Anchor tenants and other large office users will start the lease planning process well in advance of their lease expiration.
If they’re kicking off construction of a new building or will be taking space that’s currently occupied, they may be signing a lease two or more years before they’re scheduled to take occupancy in the new space. However, subsequent economic uncertainty or business changes may mean that the tenant now needs more (or less) office space than the figure stated in the new lease.
A right to expand or contract the premises before taking occupancy can help such tenants avoid moving into new office space that’s the wrong size on Day One.
Checklist for negotiating pre-move-in expansion and contraction options
- Do you have the right to expand/contract the square footage of the Premises by __ % or __ rentable square feet prior to occupancy? Is this a fixed number or a range?
- Is the location of Pre-Move-In expansion space identified? Is the location of Pre-Move-In contraction space specified?
- When is the outside date for you to exercise your Pre-Move-In right to expand the Premises? When is the outside date to exercise the Pre-Move-In right to contract the Premises?
- When is the due date for you to complete construction drawings for the Pre-Move-In expansion space or, if construction drawings are prepared by the landlord, timeframe for your approval?
- When is the Pre-Move-In expansion space to be delivered to you?
- In what condition is the Pre-Move-In expansion space to be delivered? “Vacant and ready for commencement of construction of Tenant Improvements” or “Substantially Completed”?
- If the tenant improvements for the Pre-Move-In expansion space are to be constructed by you, is the rent for such Expansion Space abated in full for __ months following the delivery of the space to you?
- If the tenant improvements for the Pre-Move-In expansion space are to be constructed by Landlord, is rent for such Pre-Move-In Expansion Space abated in full for __ days following the delivery of the space to you in order for you to install your furniture, fixtures, and equipment?
- Is the Pre-Move-In expansion space to be leased under the same terms and conditions as the balance of the Premises?
- Is there a fee if you exercise your Pre-Move-In contraction right? If so, is the fee limited to the landlord’s actual out-of-pocket costs? Or if the contraction space is a partial floor, does the exercise fee also include an estimate of the landlord’s demising costs? Is there an additional agreed-upon penalty sum added to the fee?
- Has the landlord granted other rights to other tenants that will be superior to your Pre-Move-In expansion right?
Don Wenig
Blackacre Advisors LLC
info@blackacreadvisors.com
312-345-4778
DISCLAIMER. Our writings are from a real estate transaction perspective and for informational purposes only. Nothing herein shall be considered legal, accounting, tax, or architectural advice. Please consult with the appropriate professional(s).