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Dealing with New Issues for Tech Tenants

| Sep 23, 2016 | Commercial Real Estate |

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The increase in tech tenants has a lot of commercial property owners enjoying the increased revenue of long term renters (low vacancy rates) and higher rents. But while enjoying the benefits, landlords must also consider a few new lease issues.

Every tech tenant is going to value the ability to create high density workspaces that can be utilized 24/7. They also want locations that provide employees with the opportunity to engage in “recreation” without leaving work. This has many southern California property owners feeling the need to design/construct new developments and renovate existing properties to include systems and structures that will support these tenant needs. To meet the desire for high employee density and high traffic use, many southern California property owners and developers are incorporating extra restrooms, wider stairways and hallways (and fire stairs), high speed elevators, etc. Traditional limitations on density levels included in the lease agreement are often met with resistance by tech companies and will be viewed by many as a deal breaker. For instance, including a specific limitation in the lease that the tenant’s use not result in density exceeding more than one person for every 300 square feet.

Rather than including this traditional language limiting employee density in the lease agreement, landlords will find more success with a different approach. Simply require that the employee density comply with legal requirements. Stipulate the property owner is not responsible for higher density accommodations to design of the building’s systems or structure. While tech tenants will balk at specific limitations on their employee density, they will often view this less traditional approach as additional freedom to create the space they want for their work environment.

For example, instead of limiting the employee density in the lease agreement, state in the lease agreement that the building’s heating and cooling systems will achieve specified temperature ranges tied to employee density. Similar specifications can be designated for the employee density requirements for optimum electrical functionality in the building (electrical capacity accommodates a specified connected load), specified speed of elevators dependent upon building occupancy, etc. The lease can continue on specifying the tenant’s options: installing supplemental heating/air conditioning units, use of fire stairs to expedite floor-to-floor travel, etc.

Quick Tip for Landlords with Tech Tenants: Many tech tenants will be interested in obtaining rent-free and/or exclusive use of amenity space and facilities in common areas on the property: green space, roof decks, fitness centers, terraces, etc. When granting exclusive use rights, retain the right to use the areas for landlord-hosted events as well as to show to potential investors, etc. Always retain approval rights over fixtures and other tenant installations in order to dictate the quality standard.

For more assistance in dealing with tech tenant issues or negotiating a lease agreement with a tech tenant, please get in touch with one of the experienced real estate and business attorneys at The Law Office of Retz & Aldover LLP.