Base lease rate remains the same for all years of the lease. More common in short term leases.
Base lease rate increases each year of the lease. This
is characteristic of most office leases. A lease
with an $18 starting rate and $1 increases or "bumps"
would look like $18 yr.1, $19 yr.2, $20 yr.3. The most
common bumps in the Austin market are now $.75 per year.
Tenant would have option to renew current space at the
end of their lease term. Often the tenant is required
to give the landlord 60-120 days advance written notice
of their intentions to use the renewal option. It is typically
stated how many years the tenant must renew for but leaves
the rate open ended-- "at the then prevailing market rates".
This renewal option protects the tenant from having their
space leased out from under them by adjacent tenants.
Landlords don't like giving options because it restricts
their leasing flexibility.
The rate at which the tenant can renew is guaranteed and
stated in the lease. Only the biggest tenants are able
to negotiate a stated rate renewal. This option is huge
risk for the landlord and is only given to attract the
best tenants.
A condition that the landlord must offer available space
in the building to the tenant before leasing it to someone
else. Typically this right is only given on adjacent spaces
and is used to help a tenant with growth concerns when
signing a long term lease. The tenant must take the new
lease space at the rate pre-negotiated with the other
prospective tenant. Often, this right of refusal is only
good one time and the tenant has only a few business days
to make a decision. If the space is refused, the landlord
has no further obligation to make it available to the
tenant in the future.
Landlord must offer the tenant space as it comes available but is not required to have another tenant ready to lease it.
Warehousing is a leasing strategy to accommodate future
growth. The tenant leases more space than they currently
need and subleases the extra space to smaller tenants
for short terms. The idea is that the master tenant will
need the space about the time the sublease expires so
they will have space available to grow into. This was
very common during the dot com boom when occupancy was
around 97%. This is still a viable option for growing
companies but can be financially risky.
Example: Tenant signs a 5 year lease for a total of 10 ,000 SF. The company is growing and will need 6 months to add staff and fill the entire space. Tenant negotiates to pay rent on only 5,000 SF for months 1-3 , 7,500 SF for months 4-6 and the full 10,000 SF for the remainder of the term. This guarantees that the landlord will have the entire space leased and allows the tenant to have all the tenant improvements done to their specifications at one time.
Tenant has the right to end the lease by paying a fee equal to the un-amortized tenant improvements, free rent and leasing commissions. This is typically an expensive proposition for the tenant but does provide flexibility. Some nonprofit tenants with public funding need to have this option since their funding is allocated one year at a time. Landlords are very reluctant to make this concession in their leases.
Expansion within your current building is a good way to grow without incurring the cost or inconvenience of moving. Often you can lease another suite and sync the new lease expiration to your primary lease. Syncing lease terms is a good strategy for companies leasing in multiple locations also. This allows you to move your whole operation to a larger contiguous space when all the leases expire.
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