Real Estate Office Lease: A General Guide

What is a Real Estate Office Lease?

A real estate office lease, also known as a commercial lease agreement, is a legally binding agreement made between a landlord (lessor) and tenant (lessee) for the purpose of renting commercial space for business offices. The tenant, typically a business owner, will need to sign the office lease as a requirement for renting the commercial space.

Real estate office leases can have terms from five to ten years in length, so it is a big investment made by the tenant. Because of this, it is important that the tenant (lessee) fully understands the lease terms included in the agreement, and negotiates terms that may make the lease more favorable to the business.

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Examples of Commercial Real Estate Property

Commercial real estate property is property that is rented for commercial or business use, and it not just limited to office spaces. Businesses of all sizes may need to rent commercial space to store inventory, give their employees a place to work, have a retail space for customers, and more. Some examples of commercial property include:

• Office space
• Warehouses and industrial space
• Retail space (stores, shopping centers, etc.)
• Leisure space (hotels, restaurants, sports facilities, etc.)
• Healthcare space (medical, dental, nursing homes, etc.)

Common Terms in a Real Estate Office Lease

A real estate office lease will have varying terms, but below are some you will typically find which are important to understand:

Cost of Rent & Escalations

This clause will typically include the monthly fee paid by the tenant to lease the office space. Rental rates can vary, but is typically calculated off a price per-square foot ($/SF) basis. There may also be rent escalations over the lease term to keep an eye on, which are increases in rent based on certain timeframes.

Lease Term

This section of the lease will outline how long the length of the lease is. Office leases can typically see lease terms of five to ten years.

Modifications, Improvements, and Buildouts

For office spaces, it is common to renovate and modify the space to fit the office’s needs. There will be a provision in the lease agreement that outlines what the tenant is allowed and not allowed to do as it relates to renovations, modifications, and buildouts. Make sure the lease allows the modifications required for your business plans.

Maintenance and Repairs

There will be a section of the lease that outlines who is responsible for paying for maintenance and repairs of the property. Depending on the lease, this may be the landlord’s responsibility or the tenant’s responsibility. It is important to understand this so that you can budget accordingly.

Subletting

Subleasing space for offices can be common, and there is typically a section in the lease that addresses this. If you plan to sublease part of the office space, make sure the lease allows it and understand the obligations you will have if you do sublease part of the space.

Renewal & Termination

The lease will have language around the lease renewing (i.e., how the lease will renew) and how each party can get out of the lease. No one wants to think about worst case scenarios, but make sure this section is fully understood in case the lease needs to be terminated early.

Use Clause

Lastly, an office lease will typically have a clause that outlines what the property can be used for. If you’re planning to use it strictly for office space, make sure the language of the lease allows for this. If you plan to use any part of the space for other reasons (i.e., retail, entertainment, storage, etc.), make sure this is allowed under the current lease language.

Seeking Professional Advice

Whenever you are asked to sign a legal document, especially when it is a big investment, it is always recommended to seek professional legal advice. Commercial real estate lawyers can help guide you through the process of drafting or reviewing a real estate office lease. These professionals will understand the terms and what is fair within the market. They will also help protect your rights as a landlord or tenant to set the transaction up for success.