Protect Universal Space: Draft Lease Provisions with Degrees of Control

In today's market, more tenants are leaving their leases early if their businesses are in trouble. Consequently, owners that are left in the lurch with broken lease agreements and a sudden loss of rental income must be prepared to quickly turn over tenants to fill vacant space. Creating “universal space,” which is all purpose and, therefore, easier to re-rent immediately, is a solution that saves time and money.

Configuring your building with a universal space design eliminates the need for—and significant cost of—renovations to transform a space that was customized for the previous tenant's use into something better suited to the needs of a new tenant.

Whether you are deciding how to configure the space in your newly constructed building or in a second-generation building that you are overhauling, it is crucial to draft your lease to plug loopholes that might inadvertently allow tenants to make alterations—negating the point of designing an all-purpose space to begin with.

The Design Must Be the Aesthetic

Just because universal space is designed to suit every tenant that moves in and out of your building, it doesn't have to be boring. Making space fit current tenants, but also leaving options open for future use—while still keeping aesthetics intact—can be done with style, and reap benefits in addition to keeping space filled as efficiently and cost-effectively as possible.

“People are afraid of things that become generic,” notes Doug Sitzes, an associate and senior designer with Gensler, a global architecture, design, planning, and consulting firm. The key is to make your universal space design part of the building's aesthetic, says Sitzes, who has 17 years of experience in all aspects of the architectural interior design process. It has to be explained as part of the selling point of the building, otherwise it will become quickly overlooked and pushed to the side as just something nice that you want to do.

For example, when you can say that your building is taking a universal space initiative because those measures will make it LEED certified or LEED Silver, resulting in energy savings that competitors can't offer, prospective tenants think, “I can actually gain something from this.” “Greening gives a perceived value that is quantifiable and marketable against other owners' spaces,” says Sitzes. Universal space is not just about what is most efficient for you.

Some prospective tenants may think that universal space can't be personalized at all. So explain that you are trying to avoid just those types of alterations that take time, money, or aggravation to make and undo, delaying new tenants that want to move in. Offering to make changes at a superficial level that can be easily reversed gives tenants a sense of uniqueness and ownership over their space. So create flexibility within a proposed set of aesthetic choices, recommends Sitzes. One example: Offer interchangeable glass options or other fixtures that won't cause damage.

Your goal is to create a multi-functional building that will transform only slightly from organization to organization as tenants move in and out, but you can create the illusion of personalization by giving tenants small design choices that you are comfortable with. However, you also must keep the space uniform and interchangeable.

Protecting Universal Space

There are several types of provisions, giving you varying levels of control over your property, which can be drafted into a lease to protect your interest in maintaining your universal space:

Complete control over space. The first is a provision restricting any alterations. Include a penalty providing that if a tenant does make any changes, the cost of returning the space to its initial condition will be offset against the tenant's security deposit.

Approval dependent upon alteration costs. If a compromise is necessary to fill long-vacant space or to negotiate with a desirable tenant that wants to individualize its space to a greater degree than others, take a middle-of-the road, expense-based approach.

If an alteration costs less than a dollar amount you specify in the lease, your tenant doesn't need permission to make it; if the cost is higher than the lease amount, the work has to be approved. Be wary of tenants that try to split up an expensive, substantial customization into several less expensive projects in order to sneak around the cost-based provision. Introduce language that makes each small improvement cumulative, with a cap on the total expense.

Calling the shots on case-by-case basis. You may be willing to accept some changes on a case-by-case basis because you are not willing to lose tenants over having complete control of your space. The most effective way to keep the turnaround time short if you need to bring in a replacement tenant is to include a provision requiring express prior permission to change anything—no matter what the cost or nature of the alteration.

It is crucial to work in partnership with your design team to set in place a “brand identity” for the building. That brand can support your business model, as well as develop your marketing approach. Marketing materials and leasing agents should describe the holistic nature of the building. This moves tenants away from thinking about your strategy in designing all-purpose space, and encourages them to think about how they are moving into the building as an infrastructure that can be manipulated using space that can change with them, rather than you. Making your design model into a brand opens up a different dialogue with tenants on how people can use space. But the marketing pitch should be thought of up front, says Sitzes, before you implement a universal space design.

Smart Solutions for Flexibility

At the construction stage of either a new building or one that is being overhauled, you should discuss two major options with your designer or design team. Setting your ceiling plane as an unchanging element where all of the lighting, mechanical, and sprinkler systems are integrated makes everything underneath easily manipulated. The ceiling can't be changed, but the walls under it can be.

Likewise, a raised floor with an under-floor air and power distribution system becomes completely unified, allowing you to build—and then change—anything you want on top of it. “The cost outlay is prohibitive,” Sitzes points out, “but looking at it from a long-term owner perspective, an all-purpose space design can make a transformational change right now and in the long term, as opposed to a building where customized space is constructed as cheaply as possible and then torn out later as tenants leave.”

To create an all-purpose building, the infrastructure model needs to change. Stop focusing on typical construction and focus more on demountable walls and glass office fronts that move so you can develop flex planning modules than can shift to wherever you need them, advises Sitzes. You're creating inherent flexibility so that maybe the aesthetic doesn't change much but the flexibility comes in the planning: You could plug in additional modules allowing for a quick-change scenario.

You want to design your building to work for you toward your business goal, which is leasing space to more people more efficiently, while lowering the costs and avoiding the wait time involved in renovating a specialized space. But your lease must protect your design strategy to do so. While planning modules, flexible fixtures, and demountable walls can transform 10,000 square feet to adapt to a new group almost overnight, you should be the only person authorized to do it.

Insider Source

Doug Sitzes: Senior Designer, Gensler, 2500 Broadway, Ste. 300, Santa Monica, CA 90404; (310) 449-5600; doug_sitzes@gensler.com.

Search Our Web Site by Key Words: universal space; vacancy; space configuration; drafting lease; control