01 / Overview
What determines the economics of a lease
For a tenant, leasing premises is part of its fixed costs; for an owner, it is a source of income. In both cases, the result is determined not only by the rental rate: the overall burden is affected by the indexation mechanism, the operating costs and utility charges included, the amount of the security deposit and the allocation of repair costs. A lease that sets out these terms in general wording shifts the uncertainty to the party that does not control the calculation.
Standard forms are drafted in the interests of the party that proposes them. Owners' forms usually widen the grounds for changing the terms and for withholding the security deposit, while limiting liability. Large tenants' forms restrict the owner's ability to dispose of the property and to increase the rent. A review of the lease shows which of these terms are a matter for negotiation and which are acceptable in the particular situation.
Refurbishment, layout alterations and installation of equipment are carried out for a specific use of the premises and lose their value on exit from the lease, so the scope of the tenant's investment and the lease term are considered together.
The term and the exit procedure determine the stability of the relationship. A long term protects the tenant against changes in terms and gives the owner a predictable income, while restricting both parties' ability to change their plans. The possibility of early exit, its cost and the notice period are discussed when the lease is concluded, since changing these terms later depends on the other party's consent.