During an office lease negotiation, it isn't unusual to ask for different concessions from the Landlord. Some of these concessions include tenant improvement allowance, free parking, health club memberships, free building conference room use and your favorite, free rent. We cover all of these items in detail with our Dallas tenant representation service.
The amount of free rent depends upon the demand for office space and the length of the lease term. Also, the definition of free rent may be tricky. Depending upon the type of lease you are negotiating you can have three different types of free. Most people would like everything to be free for a certain number of months.
Three office lease types and how the effect free rent:
Full Service: This is the best lease option if you want 100% free occupancy. Since the operating expenses and utilities are included in the rent you will pay nothing during your free rent period. I am assuming that you negotiated free parking.
Gross + Electricity: This scenario is the same as the full-service lease with the exception that the electricity is billed separately and is not included in the rent. Therefore you are expected to pay the estimated electricity expense.
Triple Net Lease: This lease separates the operational expenses, taxes and building insurance from the base rent. By definition, if you negotiate free rent these expenses also called Triple Nets (NNN) are excluded and you will pay them during the free rent period with the estimated utility expenses. These expenses can rand anywhere from $8.00 - $16.00 per rentable square foot depending upon the building you select.
Tips to Maximize Your Free Rent
Landlords Perspective: A landlord will perform a financial analysis on the lease they are considering. Free rent impacts the effective rental rate and lowers it. However, the future rental rate on the lease will not be impacted. Landlords are often looking at the long term impact of their leasing decisions and may determine that the value of your lease is the actual income stream provided to a future purchaser of the property. Try to determine if the property is for sale because a few months of free rent are of less importance than the ability to reduce the buildings vacancy rate.
Occupancy Period/Lease Commencement: Be careful how your lease describes your lease commencement date. You don't want to lose your free rent period during construction. Be certain that the free rent begins after the certificate of occupancy is delivered.
Length of Term: The longer the lease term the easier it is to increase free rent because the free rent will have less impact on the effective rental rate. Don't expect to get five months of free rent on a three-year lease. However, it is reasonable to expect five months on a five-year lease.
Early Occupancy: It is advantageous to be able to early occupy an office space to install networking and various support functions prior to actually opening the office. Don't let your free rent period commence while you are preparing your office space to conduct business.
In the present Plano office market free rent isn't as easy to acquire as in previous years. However, it is still available. You just need to know how to position yourself to get the highest benefit. Contact us and we can help you get more free rent than you would without us.