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Real Estate and Leasing Tips for Emerging Companies Chip Leyens Shareholder Baker Donelson
2 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Some Basics Why buy when you can rent Permits (recommended) & Zoning (check it) IT issues – don’t get stuck with a fax-modem Take it for a test drive – try a sublease or shared space arrangement
3 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Sublease: Kind of like a starter home Good way to get your foot in the door and not pay a lot Sublease rates generally are less than direct lease rates Do not put any of your $ into sublease space because if your sub- landlord defaults, you are out Have to figure out space and service allocation, as well as access In a soft market, sublease space is available and subleases can lead to direct leases with landlord
4 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Not just location, location, location Negotiate ability to take on additional space and get out early if you need to Short initial term with good expansion, renewal and termination options Flexibility, flexibility, flexibility
5 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Expansion options: Lots of ways to structure “Hard” expansion option identifies specific space at a specific rate “Floating” expansion option identifies a certain amount of space in various potential locations within a building Right of first offer Right of first refusal Notice of availability of space Be a good tenant
6 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Renewal options: Setting renewal rent up-front vs. determining it at a later time (kind of like fixed v. variable interest rate) Don’t get hung up by landlord renewal language re: no defaults
7 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Termination options: Try to limit payment to reimbursement of landlord’s unamortized up- front costs (commissions and tenant improvement allowance) over initial term of the lease
8 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Pricing Try to get a cap on variable costs in the lease or a gross lease (gross v. net lease)
9 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Build-out work: If you are getting work done in the space, try to get the landlord to do it (unless you’re a contractor)
10 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Tenant allowances = landlord financing of improvements It usually gets paid back by tenant over time as part of base rent Depending on market, no free lunch
11 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Get a broker who knows the market: Don’t rely on the landlord’s broker (or on your lawyer to work the numbers) Start early with a good local broker who knows the market Make sure broker has experience for applicable type of space: e.g., office, retail, warehouse, medical and/or flex space
12 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Legal issues: Clearly drafted lease that identifies each party’s respective maintenance, payment and other obligations No gotcha clauses that will give landlord undue leverage (e.g. rent acceleration) Insurance and indemnity issues in leases are usually the most difficult
13 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Want LEED certified space? Tell your broker! Different types and levels of LEED certification LEED building does not necessarily mean cost savings on rent (but there could be other benefits)
14 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Assignment: Make sure it’s broad enough to permit change in control, sale/merger, etc., without landlord’s prior consent
15 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Guaranty: If you have to give one, try to include a burn-down provision in it
16 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Flexibility Should include parking and operating hours - don’t get jammed on after-hours HVAC
17 © 2013 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Questions
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