Direct Lease: NYC Office Leasing, Explained

How a direct lease works in a New York building

You tour, you shortlist, and your broker submits a letter of intent covering rent, term, free rent, tenant-improvement allowance, security, and delivery condition. Once terms are agreed, the landlord's attorney issues the building's form lease, drafted in the owner's favor, and that document is where the real negotiation happens.

New York adds two mechanics worth understanding. Most private landlords ask a principal to sign a good guy guaranty, a personal guaranty that runs until the tenant vacates and returns the keys in the agreed condition, and nearly every lease escalates annually through fixed bumps or expense pass-throughs. Both are standard, both are negotiable at the edges, and both should be confirmed on the specific lease.

A worked example at the citywide median

Take a team leasing 5,000 square feet at the citywide median asking rent on our book, $75 per square foot per year. Base rent runs $360,000 a year, an even $30,000 a month, before escalations, electric, and pass-throughs.

On a direct deal with real term behind it, that tenant should also be negotiating free rent and a landlord contribution toward the buildout, neither of which a subtenant typically gets, and spread across the term those concessions pull the effective rent meaningfully below the asking number, which is why we price direct deals on effective rent.

What is negotiable, and what we push on

Almost every economic term in a direct lease moves if someone competent pushes on it, and on a tenant-only mandate we push on all of them. Which lever moves furthest depends on the owner: some trade free rent for term, some protect the face rate but fund a generous buildout.

• Free rent: how many months of abatement, and whether they run concurrent with the buildout or in addition to it
• Tenant-improvement allowance: its size, when it actually gets paid, and what happens to any unused balance
• Escalations: the annual bumps and the base year for operating expenses and real estate taxes
• Options: a renewal at a defined rent-setting mechanism, and a right of first offer on adjacent space
• Security: the months on deposit and a burndown after a stretch of clean payment history
• The good guy guaranty: its cap, its notice period, and what releases the person who signed it

The traps that cost tenants money

The form lease contains most of the traps. The expensive clauses rarely sit in the rent section; they sit in operating expense definitions that quietly sweep in capital items, in restoration obligations that make you demolish your own buildout at the end of the term, and in assignment clauses that let the landlord recapture your space if you try to sublet. Price each one before signing.

Measurement is the quieter trap. Rent is quoted on rentable square feet, which carry a loss factor above what you can occupy, so two floors at the same asking rent can price differently per usable foot, and a floor delivered raw absorbs months and real money before move-in.

On most direct deals the landlord pays the tenant broker's fee, so representation costs the tenant nothing. Get the fee arrangement in writing at the start.