Key Points to Check when Leasing an Office Premises

What am I renting? Gross leasable area vs. usable area

First, the parties have to determine the surface of the office premises by reference to the following two terms: gross leasable area and the usable area. Usually, the surface of an office premises mentioned in the lease agreement is established as the gross leasable area (GLA), calculated pursuant to the international standard measurements of BOMA (Building Owners and Managers Association).

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The gross leasable includes, among others, any basements, mezzanines, corridors, hallways, kitchens, bathrooms, closets, rooms for technical equipment level, upper floors or any other building surfaces that are shared by all tenants of that building.

It is important to mention that, as a general rule, the rent, as well as the other costs due by the tenant, are generally calculated by reference to the gross leasable area.

How much is the Rent? Rent Indexation

One of the essential obligations of a tenant is to pay the rent corresponding to the use of the office premises. However, it is important to mention that the majority of the lease agreements regulate the yearly indexation of the rent. The rent indexation represents the revision of rent pursuant to certain economic indicators aiming at measuring the inflation of different European states. The main two indices usually stipulated in the lease agreements are the HICP (harmonized indices of consumer prices) and the MUIC (Monetary Union Index of Consumer Prices).

The HICP is calculated by Member States of the European Union, of the European Economic Area and candidate countries, while the MUICP is calculated by taking the weighted average of HICPs from each country within the Eurozone.

What are the Service Charges? Capped Service Charges vs. Estimated Service Charges

Apart from rent, service charges are one of the most disputed clauses between landlords and tenants. The service charges cover the cost of general maintenance and repairs, insurance of the office building and certain services afferent to the common parts of the office building (i.e. staircase, hallways, elevators, etc.), such as cleaning, heating, electricity, etc. The service charges may also include the costs of management by the landlord or by a professional managing agent, as well for contributions to a reserve fund. It is important to understand that while the service charges refer to the services provided in relation to the common areas of the office building, the operational costs refer to the services strictly provided in relation to the leased office premises.

The lease agreement should clearly set out what can and cannot be included in the services charges. The services charges are usually regulated as estimated costs, this meaning that the lease agreement shall stipulate an estimate value of the service charges which shall be reconciled annually, based on an open book system kept by the landlord in relation to all the expenses made by the landlord and comprised by the service charges. In such case, the service charges are calculated on a pro rata basis, according to the surface of the leased premises of the tenant, its value varying from year to year (either up or down). Nevertheless, the service charges may also be regulated as fixed charges, this meaning that their value would remain the same throughout the lease period, irrespective of the expenses incurred by the landlord with the provision of the services included in the service charges.

What is the term of the lease? Fixed term vs. break option

Generally, office premises are leased for a period between three to five years. The Parties may agree on a longer lease term, in which case the tenant would probably try to carefully negotiate the terms of the lease.

The lease term is generally set as a fix term, the parties not being entitled to an early termination of the lease (in Romanian “denuntare unilaterala”). However, the lease agreement may regulate the possibility of one or both parties to benefit of a break option right. The break option rights entitles the party exercising said right to terminate the lease agreement before the expiry of the lease term, only by sending a prior termination written notice to the other party. In some cases, the parties might condition the exercise of the break option upon the payment of certain compensation by the party exercising the break option.

How can the parties terminate the lease agreement in case of defaults?

While the break option entitles one party to early terminate the lease agreement by sending a prior written termination notice to the other party, the termination of the lease agreement implies the faulty actions and/or omission of one party which entitles the non-defaulting party to terminate the lease agreement. Thus, the lease agreements should clearly stipulate the mechanism for terminating the lease in such cases, respectively: (i) with / without remedy period, (ii) with / without notice of delay, as well as (iii) with / without court intervention.

Apart from the termination of the lease, the defaulting party is usually bound to pay damages to the non-defaulting party in view of covering all the incurred loses.