The tenant's guide to a Manhattan office lease

Office searches move slower than most companies expect. Touring takes a few weeks, landlords take time to answer proposals, and the lease document itself often runs to eighty pages that both sides' attorneys will mark up. A build-out adds design, pricing, permits and construction on top.

Requirement	Start before expiration
Under 5,000 RSF, built space	6 to 9 months
5,000 to 15,000 RSF with a build-out	9 to 12 months
15,000 RSF and up, or a full floor	12 to 18 months

Starting early also strengthens a renewal. A landlord who knows you are touring real alternatives on a credible schedule tends to put a better renewal offer on the table.

Manhattan office rent is quoted per rentable square foot (RSF). Rentable area includes your share of the building's common space, such as lobbies, elevator halls, corridors and mechanical rooms. Usable square feet (USF) is the area inside your suite that your team actually occupies.

The gap between the two is the loss factor. A 10,000 RSF space with a 25 percent loss factor gives you about 7,500 usable square feet. Loss factors differ by building, and in Manhattan they commonly fall between 20 and 30 percent and can run higher in older towers.

Most Manhattan office leases raise what you pay every year through several separate clauses.

Fixed increases step base rent up each year by a set percentage, or by a set amount per square foot at defined points in the term.

Under a real estate tax escalation you pay your proportionate share of any increase in the building's property taxes above a base year, which is normally the first full tax year of your lease. Negotiating the base year and your share percentage matters more than most tenants expect.

Operating expense and porter's wage escalations cover building costs. Some leases pass through increases in the building's operating costs above a base year. Many New York leases use a porter's wage formula instead, which raises your rent by a set number of cents per square foot for every cent the union porter wage rate increases.

Electricity can be direct metered, submetered by the landlord at a markup, or bundled into rent as a rent inclusion with periodic surveys. Each method shifts cost and risk differently.

Landlords compete for tenants with two main concessions. Free rent is a number of months at the start of the term with no base rent due, often timed to cover the build-out. The tenant improvement allowance is cash toward building out your space, quoted per rentable square foot.

The two trade against each other and against rent and term, so the best offer is the one with the lowest net effective rent and the build-out you can actually afford. A longer term generally earns more of both.

Landlords usually ask for a security deposit, often as a letter of credit, sized to the tenant's financial strength. Growing companies can negotiate reductions in the deposit over the term after a record of on-time payment.

Many New York leases for smaller companies carry a good guy guarantee. A principal personally guarantees the rent, and that liability ends once the tenant gives notice, pays through the surrender date and returns the space in the agreed condition. The notice period and the condition requirements are the points worth negotiating.

A lease outlives most business plans. The clauses that let you adapt are worth negotiating up front, when you have the most leverage.

Renewal options lock in your right to extend, usually at fair market rent. Expansion rights, such as a right of first offer on adjacent space, give you a path to grow in place. Assignment and sublet provisions decide whether you can hand off space you do not need and how much of any profit the landlord keeps. An early termination option lets you exit at a set point by paying a negotiated fee.

On most Manhattan office leases, the landlord pays the commission to both its own leasing agent and the tenant's broker, under its agreement with each. A tenant can usually have full representation without paying a fee directly.

A tenant rep broker works only for the tenant, surveying the whole market, getting competing proposals in writing, testing every concession and coordinating the architect, contractor and attorney through to move-in.