Remote working is here to stay, and it will certainly become an integral part of the law firm work paradigm going forward. However, as law firms start to contemplate how this WFH trend will impact their office footprints in the future, they should be careful not to blindly follow what other industries are doing.
Category: commercial real estate
Despite children in the background and a lack of preparation, this [work from home] arrangement seems to be working. However, before we become too enamored of this new work paradigm, we should appreciate that its relative success is due only to the strong foundations that were built in the office prior to the pandemic.
The same happens in commercial real estate. When one tenants moves out, another will be moving in. If the current tenant cannot vacate in time, that exposes the successor tenant who won’t be able to move in on time. One holdover begets another holdover. Luckily for the real estate world, these broken chains are usually few and far between and the impact can be mitigated through overtime workers, temporary space or even paying some punitive holdover rent. Now, however, we’re in completely unchartered waters.
In order to compare a deal to the market, one must have access to quality data. Maintaining a database of relevant transaction comps is critical. Comps need to include details on all variables which drive landlord returns; this includes average net rental rates over the term of the lease, as well as landlord concessions such as tenant improvement allowances, free rent, and commissions.
Every tenant is in a different situation, so there are no hard and fast rules. However, your representation team (both your broker and your real estate lawyer) needs to be strategic in language negotiated to clearly define the landlord right, various mechanics of exercising the right, and the limitations of the right to protect your business.
Landlords need relocation rights to maximize revenues for the building or project. This scenario occurs frequently in a newly completed building or one that is under construction and pre-leasing space. Having the ability to move a smaller tenant to another area on the same floor or to another floor in order to accommodate a larger tenant is ideal for landlords in securing tenants that may need a full floor or prefer a certain area of the building.