It is a common fact, especially for start-up businesses, that a company’s growth trajectory and future expansion plans can make it difficult to commit to the multi-year lease agreement that most landlords require. This tension is nothing new—but with a little planning, a wise tenant can accommodate both their short-term space needs and their long-term growth plan.
If this sounds like you, be sure to include these three provisions in your letter of intent and lease agreement:
- Expansion Option. An expansion option will give you the right to expand into any vacant space in the building (or perhaps even within the landlord’s portfolio of buildings) at a defined rental rate and term. This will allow you to go to the landlord to add space at any time during your lease agreement without worrying that you’ll be taken advantage of.
- Right Of First Refusal. A right of first refusal will force a landlord to offer you space before offering it to anyone else. Most commonly, a right of first refusal will pertain to any space adjacent to the suite being leased; however, a wise tenant will ask for a right of first refusal for ANY space in the building that might accommodate their future space needs.
- Early Termination Provision. This is the most extreme—and will be viewed as the most controversial by some landlords. It gives you the ability to terminate your lease agreement if a) you need to expand, b) the landlord has no space in the building to accommodate your expansion, and c) the landlord has no space in any other building in their portfolio (within a reasonable distance) to accommodate your expansion.
Thinking through your potential future space needs and incorporating these provisions in your lease agreement can help save you time, money and headaches down the road.