When modifying office space, what ends up on your landlord’s tab? Part I

When landlords pay for modifications to their existing or new tenants’ space, they will charge a higher rent than if a tenant takes the space in its “as is” condition. Unfortunately, for a tenant trying to assess a fair rent to pay based on certain alterations, the impact on the rent is more complicated than, for instance, the amortization of a loan.

The amount of the rent increase will depend on various factors:

  • the current condition of the space
  • the type and cost of alterations
  • the credit of the tenant
  • the number of years of an existing or new lease
  • overall building marketability and quality
  • the landlord’s future vision of the building
  • and, most importantly, each landlord’s read on market trends and projected vacancies

Avoid locking up a deal to try to save money based on taking the space “as is” if you need alterations to meet your specific layout requirements.

Evaluate how much the alterations create a burden or an asset to the landlord in terms of subsequent tenant interest and overall building value. After exercising due diligence, you should get a sense of how alterations should impact your rent and by how much.