Commercial Lease Terms for NYC Startups, in the Order You Meet Them

The four terms that bite a young company first

• Good guy guarantee. A founder personally guarantees the rent only until the company moves out properly: notice given, keys returned, rent paid to that day. The lease itself does not end: the company still owes the rest of the term. Good guy guarantee.
• Security deposit. Collateral the landlord holds, usually several months of rent and more for a company with a short history. Ask whether a letter of credit can replace cash, and for a schedule that returns part of it after on-time payment.
• Sublet and assignment. The clause that decides whether you can pass the floor to another company if the plan changes. Look for consent not unreasonably withheld. Assignment and sublet clause.
• Holdover. What you pay for staying past the last day with no extension, commonly 150 to 200 percent of the final rent. It is why the next search starts nine to twelve months early. Holdover.

The term sheet: what a letter of intent is and what belongs in it

After tours, the landlord sends a proposal and your broker counters. When the numbers settle they go into a letter of intent, a few pages that record the deal before any lawyer drafts the lease. Its business terms generally bind neither side until the lease is signed, though a confidentiality or exclusivity paragraph may, so have your attorney confirm what binds.

It should state base rent and escalations, the term, free rent, the allowance or the landlord's work, the condition the space is delivered in, security, the start date and the options you want. Letter of intent has the full list.

Money terms, and what a rent per square foot per year means

• Rent per square foot per year. The annual price of one rentable square foot. Suppose a floor is quoted at $10 per square foot per year and measures 3,000 rentable square feet: the rent is $30,000 a year, or $2,500 a month. The figure only makes the arithmetic easy; no floor is being quoted.
• Escalations. The yearly increase written into the lease, usually 2.5 to 3 percent on base rent, compounding, with your share of tax and operating increases above a base year on top.
• Free rent. Months at the start with no base rent. Electricity and other charges usually keep running.
• Improvement allowance. Landlord money toward your buildout, paid against invoices as work is done.
• Security deposit. Set here as a number of months, with its burn-down negotiated in the same round.

Exposure and flexibility terms that arrive with the lease

• Restoration. What you must remove and repair when you leave. Have the lease name the items, because an undefined original condition gets priced at move-out.
• Renewal option. A right to extend, used by written notice inside a fixed window. A missed date usually ends the right.
• Expansion option or right of first offer. A right to take more space, or to see adjacent space before anyone else. It lets a startup lease for the team it has and grow in place.
• Assignment on a sale. Permission to transfer the lease if the company is acquired, so an acquisition does not depend on the landlord's blessing.

The floors on this page fit roughly 15 people, the point where many startups sign a first lease and meet these terms for real.