The Leasing Tool Kit - Part Two

Here are the remaining 5 leasing provisions that a high growth company should include in its leasing “tool kit:”

1. Relocation Rights. Relocation rights in a lease enable the company to relocate its premises to another location in the building that may be adjacent to unoccupied space, thereby positioning the company to more efficiently consolidate its operations in the building as the company grows.

2. Sublease Rights. Sublease rights provide the company with the flexibility to sublease all or a portion its premises for less than the remaining term under the lease. While the landlord will likely retain consent rights over proposed subleases, the landlord should be prohibited from unreasonably withholding its consent to a sublease. In addition, the company should have the unqualified right to permit its affiliates, subsidiaries and successors by merger to occupy the space without triggering any consent or other rights on the part of the landlord.

3. Assignment Rights. Assignment rights enable the company to assign all of its rights and obligations under the lease for the entire remaining term. As in the case with subleases, the landlord should be prohibited from unreasonably withholding its consent to a proposed assignment. Further, the definition of “assignment” in the lease should be scaled back so that merger and acquisition transactions engaged in by the company do not trigger landlord consent rights. If a landlord refuses to consent to a successor tenant, the company may be forced to breach its lease in order to consummate the merger or acquisition transaction, which could have a significant adverse impact on the company’s balance sheet, particularly if the lease is for a substantial amount of space.

4. Telecommunications. The company’s leases should include telecommunications rights that are broad enough to enable the company to increase the broadband bandwidth serving the premises as needed to accommodate company growth, including expanding needs for videoconferencing and similar collaboration capabilities as new offices and locations are added to the company’s real estate holdings.

5. Audit Rights. The company should have the right in each of its leases to perform an audit of the landlord's calculations of operating expenses that may be passed through to the company, with clear remedies in favor of the company if it finds an error through this audit process (including reimbursement of associated audit expenses). Audit rights can position the company to strictly scrutinize its operating cost pass-throughs, in particular where the company has redundant space in certain locations.

A high growth company that incorporates these provisions into its occupancy leases will be better positioned to manage its changing real estate needs, including as it grows organically or through merger and acquisition activity or as it may change its area of geographic focus.

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