Table of Contents
Need Help Negotiating a Lease?
Skyline Properties represents both tenants and landlords in NYC commercial lease transactions.
1. Types of Commercial Leases
The type of lease structure determines how costs are allocated between landlord and tenant. Understanding these structures is fundamental to comparing spaces and negotiating effectively. In NYC, lease types vary significantly between office, retail, and industrial properties.
Full Service / Gross Lease
The most common structure for NYC office space. The tenant pays a single base rent that includes all operating expenses (taxes, insurance, utilities, maintenance, and common area costs) for a base year. Increases in operating expenses above the base year are passed through to the tenant as escalations. This structure offers tenants cost predictability while ensuring landlords recover rising expenses.
Modified Gross Lease
A hybrid structure where the tenant pays base rent plus a proportionate share of certain specified expenses (often property taxes and insurance), while the landlord covers other costs (maintenance, utilities). Common in smaller office buildings and some retail spaces. The specific allocation of expenses is negotiable and varies by deal.
Triple Net Lease (NNN)
The tenant pays base rent plus all three "nets": property taxes, insurance, and common area maintenance (CAM). The landlord receives pure net income with minimal expense exposure. NNN leases are most common in retail and single-tenant industrial properties. In NYC, ground-floor retail leases often use NNN or modified NNN structures.
Percentage Lease
Primarily used in retail, the tenant pays a base rent plus a percentage of gross sales above a specified breakpoint. This structure aligns landlord and tenant interests -- the landlord participates in the upside of a successful retail operation. Common for national retailers in high-traffic NYC locations like Fifth Avenue or SoHo.
NYC Lease Structure by Property Type
2. Key Lease Terms Every Tenant & Landlord Should Know
A commercial lease can run 50 to 100+ pages and contain dozens of important provisions. While every clause matters, certain terms have outsized impact on the economics and flexibility of the deal. Here are the most critical provisions to understand and negotiate.
Base Rent & Rentable vs. Usable SF
NYC office rents are quoted on a per-square-foot basis using rentable square footage, which includes a "loss factor" (common areas, lobbies, hallways). Loss factors in Manhattan range from 15-30%. Always compare on a usable SF basis to understand true cost per square foot of actual workspace.
Lease Term & Commencement
Standard NYC office terms range from 5-15 years. Longer terms provide stability and stronger negotiating leverage for concessions. The commencement date (when rent begins) should be distinguished from the access date (when build-out can begin). Negotiate adequate pre-commencement access for construction.
Renewal Options
A renewal option gives the tenant the right (but not obligation) to extend the lease at predetermined terms. Options may specify a fixed rent, fair market value (FMV), or a predetermined escalation. FMV renewals should include dispute resolution mechanisms such as arbitration to prevent disagreements.
Assignment & Subletting
These rights allow tenants to transfer their lease to another party. Assignment transfers the entire lease; subletting transfers a portion (space or time). NYC landlords typically require consent (not to be unreasonably withheld) and may recapture profits from subleases above the prime rent.
Use Clause
Defines what activities the tenant can conduct in the space. Tenants should negotiate broad use clauses to maintain flexibility. Landlords use restrictive use clauses to control tenant mix (especially in retail) and prevent competing businesses from co-locating in the same building.
Security Deposit & Good Guy Guarantee
NYC landlords typically require security deposits equal to 2-6 months' rent plus a personal guarantee from principals. The "good guy guarantee" is a NYC-specific arrangement where the guarantor is released from liability if the tenant vacates in good condition with advance notice, limiting exposure to the period of actual occupancy.
3. Escalation Clauses & Rent Increases
Escalation clauses determine how rent increases over the lease term. These provisions have an enormous cumulative impact on total lease cost and are among the most negotiable elements of any commercial lease.
Fixed Annual Increases
The most straightforward escalation -- rent increases by a predetermined dollar amount or percentage each year. Common structures include 2-3% annual bumps or fixed dollar increases (e.g., $2-3 PSF per year). Tenants benefit from cost predictability; landlords benefit from guaranteed income growth. Both sides can model total lease economics precisely.
CPI Escalations
Rent increases tied to the Consumer Price Index (CPI), providing inflation protection for landlords. Tenants should negotiate a cap (e.g., CPI not to exceed 3%) and a floor (e.g., minimum 1%) to provide predictability. CPI escalations can be applied annually or at specified intervals throughout the term.
Operating Expense Escalations (Base Year)
In full-service leases, the base year operating expenses are included in the initial rent. Any increase in operating costs above the base year is passed through to the tenant on a pro-rata basis. Tenants should negotiate the right to audit expense statements and include caps on controllable expenses. The base year should be a "clean" year with stabilized operations.
Real Estate Tax Escalations
NYC property taxes are among the highest in the nation and have been increasing steadily. Tax escalation clauses pass through the tenant's proportionate share of tax increases above a base year amount. Given NYC's frequent reassessments, tenants should negotiate tax-stop provisions or caps where possible and require landlords to pursue assessment reductions through RPIE and tax certiorari proceedings.
4. Tenant Improvement Allowances
Tenant improvement (TI) allowances are cash contributions from the landlord toward the cost of building out or renovating the leased space. In NYC, TI allowances represent one of the most significant negotiation points and can amount to hundreds of thousands or millions of dollars for larger spaces.
Current NYC TI Allowance Benchmarks
Tenant Tips
- • Get detailed build-out estimates before negotiating TI
- • Negotiate unused TI as a rent credit, not forfeiture
- • Request above-standard TI for heavy build-outs
- • Include FF&E and soft costs (architecture, permits) if possible
- • Clarify disbursement timeline and documentation requirements
Landlord Tips
- • Amortize TI into the rent over the lease term
- • Require TI clawback if tenant terminates early
- • Consider pre-building specs to attract tenants faster
- • Cap TI at building standard improvements
- • Retain approval rights over design and contractors
5. Market Concessions & Free Rent
Beyond base rent and TI allowances, landlords offer a range of concessions to attract and retain tenants. The availability and magnitude of concessions fluctuate with market conditions -- in today's tenant-favorable NYC office market, concession packages are among the most generous in decades.
Common NYC Lease Concessions
- Free Rent: Typically 1-2 months of free rent per year of lease term. A 10-year lease might receive 12-18 months of free rent, significantly reducing the effective rent.
- Moving Allowance: A cash contribution toward the tenant's relocation costs, typically $5-$15 PSF. This can offset furniture, cabling, and moving expenses.
- Reduced Security: Negotiating lower security deposit requirements, particularly for creditworthy tenants. Letters of credit may substitute for cash deposits.
- Early Termination Rights: A "kick-out clause" allowing the tenant to terminate the lease after a specified period (typically with a penalty equal to unamortized TI and commissions).
- Expansion Rights: Right of first offer (ROFO) or right of first refusal (ROFR) on adjacent or contiguous space, protecting the tenant's ability to grow in place.
- Signage Rights: Building signage, directory listings, and lobby presence. Premium signage positions (exterior, roof, lobby) carry significant branding value.
Pro Tip: Always analyze the "effective rent" -- the net cost after accounting for all concessions, spread over the lease term. Two deals with identical face rents can have dramatically different effective rents when free rent, TI, and other concessions are factored in. Skyline Properties provides detailed effective rent analysis for every transaction we represent.
6. NYC-Specific Lease Considerations
New York City's commercial real estate market has unique characteristics that affect lease negotiation. From the city's distinctive legal framework to its building code requirements, NYC lease negotiations require specialized local market knowledge.
Good Guy Guarantee
A uniquely NYC concept where the personal guarantor is released from liability if the tenant surrenders the space in broom-clean condition with adequate notice (typically 3-6 months). This limits guarantor exposure to the period of actual occupancy and is standard in most NYC office and retail leases.
NYC Commercial Rent Tax
Tenants in Manhattan south of 96th Street who pay annual base rent exceeding $250,000 are subject to a 3.9% commercial rent tax (with a sliding credit for rents between $250,000 and $300,000). This additional cost must be factored into effective rent calculations and total occupancy cost analysis.
Local Law 97 Compliance
Buildings over 25,000 SF face carbon emission limits with significant fines. Tenants should understand how compliance costs may be passed through via operating expense escalations. Negotiate caps on sustainability-related pass-throughs and clarify responsibility for tenant-side energy improvements.
ADA & DOB Compliance
Build-outs must comply with NYC Department of Buildings requirements and ADA accessibility standards. Negotiate clear allocation of responsibility for base building code compliance (landlord) versus tenant-specific fit-out compliance (tenant). Permit timelines in NYC can be lengthy -- plan accordingly.
Real Estate Tax Abatements
Some NYC commercial buildings benefit from ICAP (Industrial & Commercial Abatement Program) or other tax abatements that reduce property taxes. Tenants should verify whether abatement savings are reflected in base year calculations and what happens when abatements expire during the lease term.
Sublease Market Dynamics
NYC's active sublease market offers tenants opportunities to acquire space below direct lease rates, often with existing build-outs. However, subleases carry unique risks including limited term flexibility, dependency on the prime tenant's lease status, and restrictions on further modification of the space.
Skyline Properties brings deep NYC market expertise to every lease negotiation. Robert Khodadadian represents both tenants seeking optimal terms and landlords maximizing occupancy and rental income across Manhattan, Brooklyn, and the outer boroughs.
7. Frequently Asked Questions
What is a typical commercial lease term in NYC?
NYC commercial office lease terms typically range from 5 to 15 years, with 7 to 10 years being most common for mid-size tenants (5,000-20,000 SF). Retail leases often run 10 to 15 years with renewal options. Shorter-term leases (3-5 years) are available, particularly in the current market, but usually come with fewer concessions and smaller TI allowances. Longer terms give tenants more leverage to negotiate favorable economics.
Should I hire a tenant rep broker?
Absolutely. In NYC, tenant representation is typically free to the tenant -- the landlord pays the commission. A skilled tenant rep provides market intelligence, identifies suitable spaces, negotiates on your behalf, and ensures you receive market-rate concessions. Tenants who negotiate without representation consistently pay higher effective rents and receive fewer concessions than those with experienced broker representation.
What is a loss factor and how does it affect my cost?
The loss factor is the difference between rentable square footage (what you pay for) and usable square footage (what you actually occupy). In NYC, loss factors range from 15% to 30%+ depending on the building. For example, a 10,000 RSF space with a 25% loss factor provides only 7,500 USF of actual workspace. Always compare spaces on a usable SF basis and understand that a lower face rent with a higher loss factor may actually cost more than a higher face rent with a lower loss factor.
Can I negotiate my lease renewal?
Yes, and you should. Even if your lease includes a renewal option, the economics of that option may not reflect current market conditions. Start the renewal process 12-18 months before expiration. Tour alternative spaces to create genuine leverage, engage a broker to provide market comparables, and negotiate a complete renewal package including rent, TI, free rent, and any needed improvements. Landlords prefer retaining existing tenants over incurring vacancy and re-leasing costs, giving you meaningful negotiation leverage.