Aspects of a tenant-friendly office lease agreement

Costs related to office leasing are among the highest expense items for businesses. Nevertheless, tenants often pay less attention to clarifying and reducing these costs by negotiating more favourable lease terms. In this article, we summarise the fees and costs associated with office leasing and provide useful tips to help tenants.

Rent: a significant item among business expenses

Lease agreements are generally for a fixed term, and in most cases the tenant cannot unilaterally terminate the contract during the lease period. In other words, by entering into the agreement, the tenant essentially commits to paying the rent and other related costs for the entire duration, which can also pose a significant cash flow issue. Therefore, it is worth examining office selection and lease-related matters with this perspective in mind.

Not only the rent, but also all related expenses and other key terms are important

The amount to be paid monthly or quarterly does not consist solely of the rent: therefore, before signing a lease agreement, it is worth clarifying all the cost elements that the tenant is responsible for, and it is advisable to take them all into account together when concluding the contract. In addition to the rent, there may be fit-out costs, operating expenses, utility payments, possibly a security deposit, and the costs of tenant insurance should not be forgotten either.

Clarify the following questions in advance and make sure they are clearly stipulated in the lease agreement as well.

• who is responsible for the fit-out costs of the leased premises
• whether the tenant receives any rent payment discounts, and how rent payments are handled in the event of force majeure,
• what the operating cost covers,
• which costs related to the maintenance of the leased premises do not fall within the scope of operating expenses
• what guarantees are required (deposit or bank/company guarantee),
• what insurance (liability and property insurance) must be taken out,
• under what conditions the contract can be terminated, and whether there are options for returning or expanding the premises, or for extending the lease,
• what are the terms of termination,
• are there any change of control clauses,
• what changes the tenant can make to the leased premises and how they can be implemented,
• whether it is possible to sublet the leased area,
• whether a company logo is allowed on the office building.

The attorneys at LeitnerLaw will be happy to represent you and your business in preparing lease agreements and negotiating terms. Create predictable and secure lease terms with our help!

Most of the items on the list are self-explanatory, but it is worth dwelling on a few points a little longer. First of all, where possible, the exact circumstances for exercising the options arising under the contract should be clearly defined. We should seek to ensure that the tenant has the opportunity to make an informed decision and that the exercise of the options can support the expansion of our company or the reduction of our costs. Furthermore, no greater scope should be given to limiting the landlord’s liability than what is permitted by law. With regard to the conditions of termination, multi-step termination clauses should be requested to be incorporated into the contract so that the tenant can still remedy any potential breach of contract in a timely manner. Where avoidable, change-of-control clauses should not be accepted, i.e. restrictions that may affect changes in the tenant’s ownership structure during the lease term.

With regard to operating costs, we should clarify exactly which services they cover, ensure transparent accounting, and clearly regulate—and where possible limit—any unilateral increases.

Finally, if our business requires official authorization—for example, due to noisy activities or high customer traffic—we should inform the landlord in advance and ensure that the property’s use is permitted, obtaining all necessary permits for the tenant’s operations beforehand.

Trends in the office market favourable to tenants

Currently, office building occupancy may be lower than usual in several locations, which could provide an opportunity to secure more favourable terms when concluding new leases or to renegotiate previously signed contracts. Thanks to this same trend, landlords may be more open to leasing smaller spaces or offering more flexible lease terms with shorter durations.

Office buildings that provide larger communal spaces may come to the forefront, allowing tenants to lease smaller actual office spaces—resulting in lower rent, although operating costs may increase. Serviced office and co-working space solutions can offer greater flexibility and fuller equipment compared to traditional office leases, typically at a higher cost. It is therefore worth considering whether the classic model or more flexible solutions offer better opportunities for us.

The sustainability and modernity of an office building are also important factors, partly due to lower energy costs and partly because environmental protection in itself may be a consideration for a responsible business. It is therefore no surprise that the role of office building certifications is increasing, and that investors are also seeking certified office buildings, not least due to the requirements of ESG regulations. For this reason, we should also ask how consciously the building management operates, whether accurate consumption metering is in place throughout the building, and whether this results in lower and more predictable costs.