Technology Law Series, Vol. 4: Technology Company Lease Agreements
Technology companies have unique challenges and considerations that will need to be carefully negotiated when entering office leases. The leading need for technology companies is flexibility.
In this blog we will briefly discuss matters concerning the tenant’s use and operations, assignment and subleasing, as well as term provisions, expansion and contraction options.
When hiring an attorney to negotiate your office lease, your counsel should have, or gain, a firm understanding of your business’ current and future needs.
Use and Operations
Permitted Use Provisions
It is important that a technology company’s office lease should allow for broad usage of the space. Best practice is to ensure for general administrative and executive office use, expanded to include any ancillary uses the tech company intends to conduct in the premises, like conferences and events. In addition, technology companies should never limit themselves to a particular line of business in the language of the lease. Tech companies will want the ability to use part of the premises for marketing, app development, and any other line of business that technology companies begin to explore in the future.
Successful tech companies can go through incredible employee growth and as such office occupancy flexibility is imperative. Tech company tenants should also confirm that the building services, in particular HVAC, will support your current and future needs. Further, in most cases, tech company employees do not need a lot of space to use a laptop connected to the cloud; thus, an open floor can support many more people than may be permitted under the lease and applicable legal requirements. Your company should keep this in mind for negotiation purposes.
Building Services and Amenities
Owners and the employees of tech companies have a reputation for desiring unique amenities that traditional landlords may not fully understand. It is important to be open with your landlord about your company’s needs and desires to be comfortable and productive. These things could include 24 hours access to the building, security, amenities (like a conference center, roof deck, or gyms), parking, charging stations for electronic vehicles, and bicycle stations.
Negotiating the build-out (i.e., the initial construction of tenant improvements at the premises) is relatively easy with technology companies as the network is usually wireless and open office spaces are common. However, tenants should make sure they have sufficient electrical capacities and address changes that could be considered “specialty alterations” build outs like kitchens, wiring, and whiteboards.
Assignments, Subleasing, and Desk Sharing
Assignment and subleasing are incredibly important to a tech company tenant. The business lifecycle of a tech company is usually extremely fast, and the company’s lease should not be a hinderance to any business moves.
Having the ability to sublease and assign will allow flexibility for the company and security for the landlord. In addition to easy subleasing and assigning, tech companies often allow other companies to occupy space within the premises. Desk sharing is similar to a sublease. However, they are considered a limited license to use and occupy a small portion of the premises instead of a leasehold.
One negotiating point can be to allow for shorter term leases with more renewal options. The more flexibility over term, the less likely the premises will need to be subleased or that the duration of a sublease will be long.
Lastly, tech companies should consider negotiating tailored expansion options. Expansion options take the form of a right of first refusal (ROFR) or right of first offer (ROFO). These are contractual rights to have the first shot at leasing or buying real property before anyone else can. This will force the landlord to offer you the occupancy first and only move on to other interested parties if you decline. These rights are dependent upon the leverage of each party, as the only benefit is to the tenant to have these rights. There is no detriment to having them and then not exercising them.
If you are a technology company looking to negotiate a commercial lease and have any questions, please reach out our team at email@example.com.