Office Lease Agreements: The Basics
- Types of Office Agreements.
The majority of office leases are known as gross leases. This means that the tenant's rental payments to the landlord include the costs that the landlord incurs in operating the building, such as insurance, real estate, and basic cleaning. Electricity is typically assessed in one of three different ways: (1) inclusion, meaning that the charges are payable as "additional rent"; (2) sub-meter, which means that an accurate assessment is provided each month based on actual usage; and (3) direct-meter, pursuant to which the tenant has its own account with the utility.
The term "escalation", when used in the context of an office lease, is a widely accepted way for a landlord to cover increases in operating expenses over a lease term. Escalations may be tied to a variety of indexes and variables, including the operating expenses of a landlord, the Consumer Price Index, and wage contracts. Property tax increases may also be passed along separately. Often, a real estate escalation clause stipulates that the tenant will pay its proportionate share of any increase in the building's real estate taxes over a specified base year.
- Sublease Clause.
By limiting the ability of a tenant to sublease, a landlord is able to maintain maximum control of the space in the building. Frequently, sublease clauses permit a tenant to sublet a specified percentage (for example, 25%) of the space, or a designated portion of the space.
Signing Considerations: Make Sure that Whoever is Signing has Legal Authority.
Before either a landlord or tenant signs a lease agreement, they should make sure that whoever is signing on behalf of the other party has authority to sign. If either party is a corporation, their authority to enter into the agreement can be evidenced by a board of directors' resolution.