FREQUENTLY ASKED QUESTIONS:

 

• Net Lease- tenant only pays utilities and property tax; landlord pays maintenance, repairs and insurance.

• Double Net Leases- tenant is responsible for only utilities, property taxes and insurance premiums for the building; landlord pays maintenance & repairs.

• Triple Net Leases- tenant responsible for all costs of the building, except the landlord is generally responsible for structural repairs.

• Full Service Gross, or Modified Gross Lease- tenant and landlord split structural repairs and operating expenses (property taxes, property insurance, common area maintenance 'CAM' and utilities).

 

What is a commercial lease?

 

A commercial lease is a legally binding contract made between a landlord and a business tenant. The lease gives a tenant the right to use certain property for a business or commercial activity for a period of time in exchange for money paid to the landlord. Additionally, the lease outlines the rights and responsibilities of both the landlord and tenant during the lease term.

 

What is a sublease?

 

A sublease is a legal document that permits a tenant (e.g. lessee), who currently leases office space directly from a landlord (e.g. lessor), to enter into a separate agreement with another company (e.g. subtenant/sublessee) to occupy the tenant's office space. The lessee, therefore, not only remains the lessee, but also becomes the sublessor/sublandlord, as they are not only leasing the property, but also subleasing it simultaneously. For example, if a company leases an office space directly from a landlord, the lessor, and subsequently outgrows the office, then the company can sublease their existing office space to another company, the subtenant, and enter into a new lease for a larger office space, thereby hedging their real estate exposure.

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What is a triple net lease (NNN)?

 

In a triple net lease (NNN), the tenant agrees to pay all real estate taxes, building insurance, & common area maintenance on the property, in addition to any normal fees under the agreement such as rent and utilities.

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What is TI (Tenant Improvement)?

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One of the most common types of concessions, tenant improvement (TI) allowances are funds a landlord provides to renovate or build out a space to meet the needs of a particular tenant. This can include cosmetic improvements like new paint and carpeting, as well as more extensive changes like the reconfiguration of walls and partitions to create a tenant’s desired floor plan.

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The total amount can be calculated on a per-square-foot basis or as a lump sum, and like many concessions, often depends on market conditions at the time of negotiations. If the cost of a buildout exceeds the allowance, it’s up to the tenant to cover the difference.

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Can I negotiate for Free rent in the beginning of the lease?

 

Sometimes referred to as “free rent,” abated rent is typically offered during the first few months of a lease. This allows businesses to set aside funds for construction, moving expenses and other upfront costs without having to worry about monthly rent payments —many tenants appreciate the financial flexibility this gives them as they settle into their space.

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Who pays the real estate commission?

 

In commercial retail leasing in Manhattan, the real estate commission is almost always paid by the landlord. The commission details are predetermined by a listing agreement between the landlord and their broker, based on the broker's rates. However, there is often another real estate broker involved, a tenant representative. If a tenant representative brings a prospective tenant to the landlord's space and a lease is ultimately signed, then a portion of the landlord's broker's commission is split with the tenant representative. 

 

However, in the case of office sublets, the commission is not paid by the landlord. In most cases the current tenant who wishes to sublease their space - known as the 'sub-landlord' - pays the real estate fee to the broker with whom they enter into a listing agreement. As before, if a tenant representative brings a 'sub-tenant' to the 'sub-landlord's' space and a lease is ultimately signed, then a portion of the sub-landlord's broker's commission is paid to the broker representing the sub-tenant 

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What is a Good-Guy Guarantee? And will I have to sign one?

 

An officer of your company will likely be required to sign a Good-Guy Guarantee ("GGG"). A 'GGG' is a limited personal guarantee, a legal document which becomes an exhibit to the lease. Officers must personally guarantee that their company's rent will be paid. If they can't pay the rent, they are agreeing to be a "good guy" and vacate the space. Therefore, if the tenant is in financial trouble and needs to break their lease, the officer is held personally liable for all rent until the space is surrendered to the landlord. When the keys are returned to the landlord and any back rent is paid, the officer is, at this point, released from all personal liability. There is usually a notice period for exercising the Good-Guy Guarantee. For example, the tenant might be required to notify the landlord of their intent to exercise the Good-Guy Guarantee 3 or 4 months in advance of moving out, and therefore responsible for all rent until that point. If the GGG is exercised, the security deposit is generally not returned. Since the Good-Guy Guarantee is a legal document prepared by an attorney, they differ slightly from each other.

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What is a 'Loss Factor'?

 

Commercial landlords in New York City use "rentable" square footage as the unit of measurement for office space. This "rentable" measurement contains a proportionate share of square footage in common areas such as hallways, lobbies, restrooms and elevator vestibules. By comparison the "usable" square footage is more useful to the tenant and is the measurements of the demised space from wall to wall. Therefore, the usable square footage is always smaller than rentable square footage. The difference between the two is called a loss factor.

Loss factors tend to be greater for space on divided floors and less for full floor spaces. As a rule of thumb, New York City loss factors are generally between 25% and 40%.

 

What is a contiguous space?

 

Contiguous space is a space that is adjacent, or next door.

 

What is an escalation?

 

Escalations are annual rent increases added to the base rent to keep pace with inflation. The escalation is negotiated with the landlord, but is typically around 3% per year. Fixed annual rental rates are rare, and typically only occur in short-term leases. Note that escalations are compounded every year, regardless of any additional bumps in rent price.

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Who pays the real estate taxes?

 

Most retail leases the landlord pays the taxes. However, the tenant is responsible for their proportionate share of the annual tax increases. For example, if a tenant occupies 20% of a building and the tax bill increases from $50,000 to $53,000, then the increase is $3000. Since the tenant occupies 20% of the building they would pay an additional $600 per year, which can be paid in one lump sum or amortized into the monthly rent.

 

What type of signage is available?

Commercial properties are required to comply with sign codes and ordinances applicable in the city in which they are located. Signage in some commercial centers is controlled by operating agreements between property owners. In addition, most properties have an individual sign criteria incorporated into their leases. The sign criteria generally allow for a facade sign and placement on a monument sign, if available. Some properties allow placement on directory boards or under-canopy signs. In addition, signage may generally be installed on the inside surfaces of storefront windows. Banners, A-frames and pennants are generally not permitted by city codes, lease agreements or by individual property sign criteria. 

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What's the difference between "direct" and "sublet" office space?

 

When a company signs a lease for "direct space", they enter into an agreement with the landlord's company. The majority of office leases in NYC are direct leases, meaning, signed directly with the landlord of the building. However, what happens if your company outgrows the office space and needs to move? You guessed it! - you sublease the space to another tenant. Before signing a direct lease, make sure the landlord is granting you the right to sublet. Most do, as it's a fairly standard lease provision. Unlike a lease for direct space, the two parties who sign the sublease agreement are the existing tenant and the new tenant, i.e. the subtenant. Note that the landlord will most-likely have to give consent and approval for the new subtenant, prior to the execution of a sublease agreement. Another caveat is the landlord could have the right to recapture the office space and lease it to a tenant of their choosing, usually at a higher price.

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What is the termination fee if I break my lease?

 

You are responsible for the entire contracted lease term and amount as noted on your lease. If you feel have to move out before your lease term has expired, most leases offer the right to sublease.

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