Real Estate Articles

Taking Space As Is

Written by Brent Pace for Gaebler Ventures

When you lease a space "as is" from a Landlord, you are probably trying to save money. You should beware of these potential pitfalls to achieving your savings goals.

The typical office lease involves a few main levers from the Landlord's perspective.

You have the lease term (or length), the amount of space leased, the credit of the tenant, options to renew, and tenant improvements money. Accordingly, you as a Tenant can affect the deal you get by being willing to negotiate on some of those levers. Signing a longer lease will save you money. Signing a lease for more space may save you money. But the easiest way to get savings on a space is being willing to take it without any Tenant Improvements money. In the commercial real estate business this is often referred to as taking a space "as is."

If you are taking a space as is, it probably already has most of the things you need. It gives you the right square footage, has a good configuration of office space and open space, and provides the services you need. You should, however, be aware of these potential pitfalls as you lease a space as is in order to save money.

1. As Is means you pay for all minor fixes. Sometimes a Tenant may assume that the Landlord will make some minor adjustments for them after leasing a space as is. While a truly benevolent Landlord may be willing to give some help, most will tell you that you should pay for any changes yourself. This includes things like replacing sections of carpet (or carpet tiles), touching up paint, fixing minor dings in the walls, and changing the configuration of any existing systems furniture that came with the space.

2. As Is means no free changes to office sizes and numbers. When a Tenant is awarded Tenant Improvements money with a signed lease, they are not just written a check and allowed to buy whatever they want for their space. The Landlord gives this allowance in order to create improvements to the space that will remain after the Tenant leaves the space. In most cases this means re-doing the office configuration and moving lots of walls around. This requires the help of electrical and mechanical engineers, as well as an architect. In short, the Landlord will manage a mini construction project on your behalf. As such, if you take a space as is, but then want to move some walls, you will have some problems doing so. The Landlord will need to oversee the construction and make sure you don't do anything that damages his property. In addition, his architects and engineers will have to be paid to oversee the design work that makes the renovations possible. These folks won't work for free, so you will have to budget accordingly.

3. As Is will continue in your lease renewal unless otherwise specified. If you renew your lease by exercising an option in your current lease, you will have continued access to your space. Unless it is specifically stated, however, you will not get any tenant finish money at lease renewal. Keep this in mind if you think you could live with your space for five years but would need some improvements in order to stay another five.

4. As Is means all wiring stays where it is. In today's increasingly wired world, the location of electrical outlets, phone outlets, and other data and network cabling and ports is more important than ever. Unfortunately, taking a space as is indicates that you are making no changes to the existing network infrastructure. Be sure you can work with what you have in the space before you agree to take it as is.

Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.

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