Negotiating a Right of First Refusal When Leasing Office Space

negotiating office space right of first refusalsWhen leasing office space it's important that tenants not only think about their current needs but also their future space needs.  Too many times growing companies sign a 5 year lease not thinking about whether or not the landlord will be able to give them more space when needed until it's too late.  If you expect to hire more people you need to do what you can to negotiate a right of first refusal (ROFR) on additional office space in the building.  This will give you control of space to enable you to expand later on if needed.

How does a ROFR work?  If another company expresses interest in a vacant space next door to you the landlord would be able to market the space and negotiate a deal, however they would have to offer that deal to you first.  If you agree to take it then you typically have to take it on the terms that were negotiated, unless you negotiated otherwise.  If you turn the space down then the landlord would be allowed to sign a lease with the other company.

Below are a few things to consider when negotiating a right of first refusal when leasing office space

  • Ongoing ROFR vs one time option – You want to get as much control of vacant space as possible.  If you can get away with it then ask for an ongoing ROFR.   This means that for the term of your lease anytime the landlord negotiates a deal with another company for office space in your building the deal has to be offered to you first.  If you refuse it then the landlord can lease out that space.  When that space or other spaces become vacant or up for renewal again the landlord has to again offer you any negotiated deals.  If you only have a one time option then you only get to refuse a deal once.  After that the landlord can lease that space or other spaces to anyone they want.
  • Do you want a ROFR on only a particular adjacent space OR a ROFR on all the space in the building?
  • Make sure the landlord is required to tell you in writing when a 3rd party deal has been agreed to.  This noticed period can be negotiated to either when a written offer has been made or when both parties have agreed to terms in writing.
  • How long after the offer do you have to make the decision to exercise the ROFR?  The more time you can get the better.
  • You want to do your best to negotiate the ability to inspect the space before you have to make a decision on whether or not you want the space.
  • If you refuse the offer space do you continue to have a ROFR on that space or will the 3rd party that leases the space have a renewal option that trumps your ROFR?  See Ongoing vs One time above
  • If you accept the offer space are you obligated to take the exact terms and conditions or are you able to negotiate anything?  Will this have an effect on your original lease terms and conditions?
  • If you have a renewal option on your original lease will that transfer to the Offer space?

As you can see when leasing office space there are a lot of things that you must consider when negotiating a right of first refusal and it's important that you get it right.  Forgetting important details can have a huge impact on your company's ability to expand in the building.

If you have any questions about office leases in Austin don't hesitate to contact us.

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