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5 Things to Avoid When Entering Into a Lease – Office Space Edition

Congratulations –  You have, or are working within a successful business that demands office space. Now’s the time to either obtain your first office, or expand into an exciting new space to more adequately accommodate your growing workforce. Not so fast, though. As with anything, there are a few pertinent components to selecting your company’s ideal office space. Eliminate potential stress triggers when deciding to enter into a lease agreement to better focus on what matters most; your business.

5 Things to Avoid When Entering Into a Lease – Office Space 

Failure to Align with Corporate Ideals

It’s easy to get excited about a big move and disregard details that could potentially effect crucial goals of a business. Failure to clearly identify current and long-term priorities is a significant mistake any company can make when looking for office space. It is critical to take a step back and view the bigger picture in terms of what is important to you and the company. Similarly, it is important to identify how corporate image will be impacted based on the commercial space selected. Corporate image is important to convey to your customers, prospects and employees. You don’t necessarily see luxury brand retail stores situated next to a fast food restaurant or with similar aesthetics for that matter. Same ideals stand for office space, in the look, layout and feel of that particular office.

Not Properly Evaluating Layout of the Space & Location

You just signed the lease to your new office space and are over the moon with excitement. It’s move in day and the stress hits immediately by lack of storage, desk space or room for specialty equipment. Not adequately estimating the amount of space needed for equipment and employees is huge! For instance, on average, for every employee you should account for at least 151 square feet of workable space. Having too much space could pose as a short-term issue if massive growth is anticipated in the near future, otherwise those are just more budget-straining dollars that could have been allocated more effectively. Contrarily, if there is not enough space as-is with your new lease, this can hinder employee productivity and effective forms of collaboration.

Additionally, the question needs to be addressed in what type of environment does your business require? Are you going for a more traditional office space with some cubicles and closed offices? Or perhaps a modern open floor plan to maximize collaboration efforts on massive projects.

Location, location, locations – a seemingly obvious factor that is too often overlooked. When considering locations for your next office space, take into account traffic patterns, visibility from the road, what’s in the immediate surrounding area and notice if there is ample parking and public transit nearby.

Throwing Away the Budget

Easily one of the most important questions of them all – what can I afford? Do your operating expenses, payroll, HVAC, furniture, insurance, maintenance, and moving costs align with your budget? It’s also important to educate yourself on what the current market is and trends presenting themselves. Does it make sense to hold off for another year due to the stability of the economy, or will the space you desire already be occupied by then? Lastly, ask yourself if your budget matches up with your corporate image? If you’re a rising leader in the technology industry, an attractive, modernized office space in heavily populated Silicon Valley sounds like an ideal move for you. On the contrary, if you’re a smaller startup with not much funding, this would not mirror the same office space options that would better suit the technology company with more prestige and capital. To play devil’s advocate for a moment, it’s also necessary to think futuristically. Is there a lot of buzz about a specific area you’re interested in about massive development happening in the near future? Perhaps budget isn’t everything in a decision when considering the future benefits of occupying that specific location – but critical nevertheless.

Not Considering Corporate Growth & Technology 

To nod back to a the previous point of “Not Properly Evaluating Layout of the Space & Location” ask yourself what’s the future growth of the company? Are there additional options to grow my business in this location in the future, or will it require another move? Technology is also a factor in every business now which impacts the day to day functionality of operations and the execution of best industry practices. Is there a certain technology that the business needs that is only available in certain locations? Perhaps your business needs access to data centers, requires a larger electrical capacity,  or may need backup power and servers.

Choosing The Wrong Broker – Or Not Having One At All 

This can inevitably be a costly error, but does happen often. Not only on a monetary value of cost deficit – but time as well. Considering commercial real estate contracts from beginning to end average between 60 days to a couple of  years, should be enough information to call your favorite local broker right away. In addition, the fact that a company’s second or third largest cost is typically office space lease, should inject concern into the budget-conscious business mind of the decision maker. There’s infinite reasons why about 90% of all office space leases signed in the U.S. are executed with a knowledgeable broker.

 

 

What rules govern the return of the security deposit to the tenant?

Q. What rules govern the return of the security deposit to the tenant?
A. Residential: Upon termination of a rental agreement on residential property, the landlord must furnish the tenant the unused portion of the security deposit and an itemized statement showing what deductions have been made, no later than 21 days after the tenant vacates the property. (Cal. Civ. Code § 1950.5(g).) The itemized statement must be accompanied by receipts or invoices issued by the person that performed the work that the deductions were used to pay for; or, if the landlord or landlord’s employee performed the work, the itemized statement must list the work that was done, the time spent, and the reasonable hourly rate charged. (Cal. Civ. Code § 1950.5(g).)
C.A.R. Sample Letter “Security Deposit Return” (Form SDR) may be used for this purpose and can be found in ZipForm within the C.A.R. Sample Letters library.
If the landlord retains any of the deposit in bad faith, s/he will be liable for up to twice the amount of the deposit in punitive damages, as well as any actual damages the tenant may suffer. (Cal. Civ. Code § 1950.5(l).)
A. Commercial: For commercial leases, the deadline for returning a deposit is generally 30 days. However, if the landlord only claims deductions from the deposit based on defaults in the payment of rent, and if the deposit exceeds one month plus the last month’s rent, then any amount exceeding one month’s rent must be returned within two weeks. (Cal. Civ. Code § 1950.7(c).) If the landlord retains any of the deposit in bad faith, s/he will be liable for up to $200 in punitive damages, as well as any actual damages the tenant may suffer. (Cal. Civ. Code § 1950.7(f).)
For more information, please see the C.A.R. Legal Q&A, Security Deposits.

Q. May a tenant take the landlord (or vice versa) to small claims court over a security deposit dispute?
A15. Yes, as long as the damages claimed do not exceed the jurisdictional limit for small claims court ($10,000 in most situations where the claim is brought by a natural person.). (Cal. Civ. Code § 1950.5(n); Cal. Code of Civ. Proc. §§ 116.220, 116.221.)

Helpful Hints to Successfully Renew Your Lease

It is up to the Tenant to notify the Landlord of his/her intention to exercise the “Option to Renew”  during the lease specified notification window. Tenants need to be vigil about lease termination dates and option exercise timelines, not only to keep their renewal options in-tact, but to have better leverage when negotiating a renewal. Furthermore, if the Tenant does not notify the Landlord, the Landlord is not obligated to allow the Tenant to renew.

Avoid Costly Mistakes

One crucial mistake that a Tenant often makes, is to assume he/she can simply go to a month-to-month term until they find another location. Most leases will have a “Holdover” clause. These clauses in the lease agreement often allow the Landlord to charge a premium of sometimes as high as 200% of the last month’s rent.

How your Commercial Broker can help you

Keep in mind, it is always best to contact your commercial real estate professional at least a year prior to the expiration of your lease term to assist with these matters.  Commercial real estate professionals can:

  • Listen to your needs and provide specific options. Is it best to move or stay?
  • Explain current market conditions and how they affect your potential move
  • Provide a Lease vs. Buy analysis to see if it makes more sense to buy rather than lease
  • Perform a comparable analysis to assist in re-negotiating with the current Landlord
  • Find a new location and negotiate terms
  • Provide a timeline for tenant improvements and assist in coordinating move
Broken Record Price per Sq.Ft.

Broken Record Price per sq.ft.

CSR Commercial broker the record price per square foot on North San Jose warehouse early 2017.
Steve Malech, Senior VP of CSR Commercial Real Estate, represented his client on sale of north San Jose warehouse for highest price per square foot.