In my last two posts, I have discussed commercial lease provisions and focused on identifying the manner in which commercial rent is calculated and the operational cost items that may be included as Additional Rent. In this post, I will now provide a brief summary of another core lease term that is typically included in every commercial lease – namely, Tenant Concessions.
This summary is intended to alert you as to the nature and extent of Tenant Concessions, but it is not intended to serve as a substitute for legal counsel. As I have repeatedly stated, it is very important to involve your attorney in the early stages of lease negotiations so that your interests can be effectively addressed and protected from the outset.
This topic is not typically given a formal heading in the lease, but rather, it is present in the form of two major conditions: (1) free rent; and (2) landlord build-out. Both of these conditions are fully negotiable and the final scope of tenant concessions may include one and/or both of these items in varying degrees.
Landlord build-out refers to customized construction that the landlord will perform in order to satisfy the operational requirements of the tenant. For example, your business may require a conference room or a small kitchen, which does not currently exist in the space to be leased. Once again, the landlord may be willing to perform this construction at the landlord’s sole cost if the tenant is willing to enter into a longer term lease.
The landlord and tenant usually will jointly agree on the exact specifications of the construction, so that there is no confusion or disagreement as to exactly what the finished space will be. So, in my example, the details concerning the type of doors, door hardware, ceiling light fixtures, countertop size/material, appliances and paint color, will all be priced-out and agreed upon before the final lease is signed. In fact, often the specifications and architectural floor plans will be attached to the commercial lease as exhibits that confirm the scope of the build-out work to be completed.
Negotiation of the Tenant Concession is typically done by the attorneys for the parties after the landlord and tenant have agreed in principal to explore entering into a lease. While the tenant concessions discussed in this blog are usually the main giveaways, there are other concessions that can be negotiated depending on the tenant’s requirements. Such additional concessions could include dedicated parking space(s), upgraded floor coverings, or repairs to walls or other items in disrepair.