A Lease Option to Expand Valuable to Start-Ups-NYC Real Estate Lawyer

Given that the long-overheated office market in Manhattan is starting to cool, commercial leases are becoming somewhat more tenant-friendly. One way retail landlords are sweetening deals for tenants is to give them a lease option to expand in the same building as their office needs grow. This option is especially prevalent in “silicon alley” in the Flatiron neighborhood.

Westbrook Partners recently entered into such a deal with a tech company giving it the lease option to double its square footage later. Growing without uprooting their location is very valuable to start-up tenants. These firms are attempting to establish themselves as stable, mature companies. They do not want to explain to their clients that they move offices every two years. Many of these burgeoning tech companies are savvy and have seen previous start-ups get too optimistic and collapse under the weight of their lease obligations. Tech firms know they can’t predict their office needs in a few years and need the flexibility of a lease option like this.

Commercial landlords are reluctant to enter these deals as they don’t want to tie up their premises. They don’t want to turn away a potential large tenant later. The landlord’s fallback position in negotiating a lease option of this type is to demand the right to relocate the tenant within the building when the tenant exercises this option. It is a fair trade-off; the start-up will at least be able to maintain the same address while raising venture capital and moving into a larger contiguous space in the building. Depending on the timing and space requirements, the building owner won’t have to forgo renting to another large tenant. Commercial landlords offer this lease option to start-up tech tenants because it is a wise business decision. Tech companies are likelier to grow and become larger than commercial tenants in other industries.

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