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that it should include in the RFP, the firm can and should rely on the real es-
tate agent to help inform (and possibly draft) the RFP. The real estate agent
will be more experienced than the firm in initiating lease negotiations and
submitting RFPs. In many cases, the real estate agent will have exhaustive
form RFPs that can be modified by the firm (or the real estate agent) to re-
f lect its needs and requirements. Indeed, it is entirely possible that the real
estate agent will have recently negotiated a different lease with the landlord
and will know what tenant requirements the landlord is willing to consider.
To some extent, the RFP will be ref lective of and responsive to any initial
marketing materials that have been provided by the landlord. For example, if
the landlord has advertised 10,000 square feet of office space at $20 per
square foot for a 10-year lease term, the RFP may include an initial offer of
484 The Back Office: Efficient Firm Operations

8,000 square feet at $18 per square foot over a seven-year term. In addition,
the RFP should include whatever key business terms that the professional
services firm, in consultation with its real estate agent, deems important and
necessary to any commercial office lease.
Depending on its level of motivation, which is often a product of the
strength of the market, the landlord will respond to the RFP with its own
counteroffer. In many cases, the landlord will respond to each of the items
set forth in the RFP in turn; however, this does not always happen, and the
firm should make sure that it keeps track of any terms that were not included
in the landlord™s response to the RFP. It is common for landlords to demon-
strate their agreement to terms contained in the original RFP by simply not
responding to or countering such terms; however, the firm should confirm
that any terms not responded to by the landlord are agreeable and will be
picked up in the lease. Assuming that the parties can come to an agreement
on a majority of the business terms set forth in the RFP, they will proceed
with more formal lease negotiations.

IMPORTANT LEASE PROVISIONS. Although the scope of this chapter
does not permit a detailed analysis of all the different provisions contained
in the typical commercial lease, the professional services firm should bear in
mind that nearly everything in the lease is negotiable. The following are sev-
eral of the more important, common lease provisions that the professional
services firm and its real estate agent should look out for when negotiating a
lease. The CD-ROM that accompanies this book contains a sample of a stan-
dard commercial office lease, which can be referred to when considering
each of the following lease provisions:

1. The premises”usable versus rentable space: Rentable space is the
amount of square feet that the tenant is actually paying for and includes
common areas in the building such as hallways, restrooms, lobbies, elevator
shafts, and stairwells. Usable space is the amount of square feet that can ac-
tually be used by the firm. In almost all commercial leases, the tenant will be
required to pay for its pro-rata portion of the rentable space in the building,
and the rental rate will be based on price per square foot of rentable space,
not usable space. Thus, if the firm is considering entering a 10,000 square
foot lease, at $20 per square foot (a total lease cost of $200,000 per year), the
firm should ask what portion of the 10,000 square feet is usable to determine
what it will be paying for the space that it can actually use. In this case, if
the usable square feet totals 9,500, as opposed to 10,000 rentable square
feet, the effective price per square foot will have increased from $20 to $21.
Again, while it is not uncommon for rental rates to be quoted in this manner,
before entering the lease, the firm should understand what it is paying for
and make sure that the landlord isn™t making a hidden profit by overallocat-
ing rentable square feet to the various tenants in the building.
485
Real Estate and Facilities

2. The lease term and renewal rights: Most leases provide that the term
of the lease begins on the “commencement date” and ends on the “termina-
tion date.” As with many terms contained in the lease, however, these are de-
fined terms contained elsewhere in the lease that the firm should understand
and agree to before it executes the lease. For example, if the lease provides
that the commencement date is the earlier of a date or the date on which the
landlord completes tenant improvements, then, conceivably, the tenant could
be responsible for paying rent before the premises are ready to be occupied.
Obviously, the firm would want to avoid paying rent unless and until the
premises are tenantable and, thus, might simply change the foregoing lan-
guage to the later of a date certain or the date on which tenant improve-
ments are completed.
In addition to the dates on which the lease begins and ends, the firm
should make sure that the lease protects the firm in the event that the firm™s
office needs change over time, which is almost sure to happen. Most leases
contain a renewal option that gives the tenant the right to extend the lease
upon proper notice. The firm should try to negotiate a renewal option that
can be exercised closer to the end of the term of the lease, which will allow
the firm to continue paying rent in the premises at the prevailing fair market
rate. Recognize, however, that the landlord will try to negotiate a renewal
provision that obligates the tenant to exercise the option well before the end
of the lease (to provide the landlord with sufficient time to re-let the prem-
ises, if necessary) and may try to secure a premium above fair market rates.
3. Landlord™s work and obligations: The landlord is customarily responsi-
ble for, among other things, providing utilities for the building, maintaining
both the interior and exterior of the building, and making any necessary re-
pairs at the office building. However, the firm should be aware of exactly what
the obligations of the landlord are and when the landlord is obligated to pro-
vide such services. For example, most leases provide that the landlord will be
required to provide HVAC services during normal business hours, but not dur-
ing off-hours or on holidays. Before entering the lease, the firm should make
sure that the hours in which the landlord is going to provide HVAC services
are compatible with the firm™s business and that there is a mechanism for ob-
taining HVAC services, at a reasonable rate, during off-hours or on holidays.
Similarly, if the landlord cannot provide such services, whether through its
fault or that of a third party, such as a utility company, the firm should make
sure that it is protected from any business interruption by a rent abatement
clause and /or business interruption insurance.
4. Assignment and subletting: Assignment and subletting provisions are
common in commercial leases and generally spell out the manner in which the
tenant can pass off all or a portion of the leased premises to another tenant. In
much the same way that the renewal option discussed earlier gives the tenant
the right to protect itself in the event that future business needs change, so
do assignment /subletting provisions. In reviewing the assignment /subletting
486 The Back Office: Efficient Firm Operations

provision(s) in the lease, the firm should ensure that, although landlord ap-
proval is required prior to any assignment or sublease, such approval will not
be unreasonably withheld or delayed.
5. Nondisturbance agreements: In the event that the landlord™s mortgage
on the office building is foreclosed, in many states, junior leasehold interests
are wiped out. This effectively means that any buyer at a foreclosure sale is
under no obligation to honor the existing leases in the building. To protect it-
self from exposure if there is a foreclosure on the building, the tenant should
insist on a nondisturbance clause, which essentially provides that any buyer
at a foreclosure must honor the terms of the existing lease and the tenant™s
rights thereunder.

ATTORNEYS. In addition to the real estate agent, the professional services
firm should consider retaining legal counsel to assist in negotiating the lease.
Although it may not be necessary to retain counsel while the office search is
being conducted, once a choice has been made, the firm should retain coun-
sel to help ensure that the business terms of the deal, as ref lected in the RFP
and the landlord™s response(s) thereto, are accurately ref lected in the lease.
While there is a certain degree of overlap between the services being pro-
vided by the real estate broker and the real estate attorney, on average, the
real estate attorney should possess a greater familiarity and understanding of
all of the terms of the lease than the real estate broker. Retaining real estate
counsel will invariably add to the cost the professional services firm incurs in
leasing commercial office space; however, such costs are nearly always out-
weighed by the value that the real estate attorney adds to the lease negotia-
tion process. Chapter 19, Legal Counsel covers the process of selecting an
attorney by the professional services firm in detail.

Finalizing and Executing the Lease
Negotiating and finalizing a commercial office lease can take a significant
amount of time, and the firm should be prepared to spend several weeks re-
viewing and negotiating the draft lease. It is important that the firm leave it-
self sufficient time to fully negotiate the lease and, if necessary, break off
such negotiations and look elsewhere for office space. If the landlord is
aware that the firm has to move out of its present office by a particular date
or that the firm has few or no other options, the landlord will have a real ad-
vantage in bringing the lease negotiations to a close.
Nonetheless, once an agreement has been reached on the final terms of
the lease, the firm and the landlord will execute the lease. If the firm has
agreed to make prepaid rental and security payments, such payments are
often due at the time the lease is executed. Thereafter, and depending on any
finish-out that needs to be conducted in the premises, the firm should be in
a position to take possession of the premises and begin its tenancy.
487
Real Estate and Facilities

Office Design, Finish-Out, and Furniture
In addition to selecting an office and negotiating a lease, the firm should
spend significant time in planning the office design, finish-out, and furnish-
ings. Each of these components, among others, is of critical importance in
both obtaining and maintaining client relationships. As one recent article
noted with regard to law firms:

Clients, particularly corporate entities, are conf licted in their perception of law
firms. They want the legal practice they hire to be at the forefront of their pro-
fession, yet they expect the markers that signify solidity and stability.
In response, some law firms have chosen to look more like their customer base.
In San Francisco, for example, those [firms] targeting dot-com companies aban-
doned wood paneling and private offices for light, open, airy spaces. This ap-
proach furthered a perception of niche expertise, but the risks became painfully
apparent in the technology downturn.
What a law firm™s offices look like is an issue because clients regularly visit.
In contrast to management and technology consultants, which often do the bulk
of their work at the client™s site, law firms host their customers.
To be most effective, the appearance of a firm™s offices must match the image,
or brand, clients receive in advertising, personal meetings, and other encounters
with the firm. That appearance should ref lect a firm™s expertise without being so
closely aligned to a market segment that it loses other business.6

Office design, finish-out, and furnishings not only are important from an
external, client-related perspective but also play a crucial role in helping to
form and foster the internal culture within a firm. Employee moral, motiva-
tion, health, and productivity can all be impacted by the foregoing factors,
and as a result, the firm should pay careful consideration to each of these
topics when planning for and setting up the professional services firm office.
Although the firm can and should analyze these and other factors on its
own, the firm should also consider hiring a space planner/interior designer to
assist in this very important phase of relocating to new office space. In much
the same way that the real estate agent and attorney can provide valuable as-
sistance and insight into the search for office space and the negotiation of the
lease, the space planner can save the firm time and money by coming up with
innovative ideas and solutions to the firm™s office design and furniture needs.

Office Design
There are generally two types of office plans that the professional services
firm can adopt: the closed office plan and the open office plan. A balance can
be difficult to achieve, as noted by Gregg Hlavaty of Benson Hlavaty Archi-
tects: “The most prevailing dichotomy in office space design”and the one
most difficult to achieve”is to provide work spaces which are both open and
488 The Back Office: Efficient Firm Operations

interactive, but also allow for privacy and contemplation.” Examples of these
two types of f loor plans are shown in Exhibit 18.2.

CLOSED FLOOR PLAN. Traditionally, professional services firms have
opted for the closed office plan, which generally provides more privacy for
professionals. This type of office plan is predominated by exterior and inte-
rior offices of various sizes and internal walls that separate different
groups or sections within the firm. Although the closed office plan affords
the firm a greater degree of privacy, it is also more expensive than alterna-
tive f loor plans.

OPEN FLOOR PLAN. The open plan is usually a more cost-efficient layout
that promotes a more social work environment. An open office plan is most
often predominated by a large open area that is divided up into individual or




Exhibit 18.2 Floor Plans
489
Real Estate and Facilities




Exhibit 18.2 Continued
490 The Back Office: Efficient Firm Operations

shared workstations by a series of partitions of varying heights. Although pri-
vacy is sacrificed in an open environment (and thus is probably not an option
for some professional services firms, such as law firms, that put a high pre-
mium on privacy), open offices are effective in fostering interaction because
professional and administrative are not isolated in individual private offices.
Additionally, open f loor plans often force people in the office to interact
with one another more often than they might in the closed office environ-
ment. Indeed, some open office plans incorporate common walkways that
force professionals in the firm to go out of their way to reach a destination
(e.g., the restroom or kitchen), which can also be beneficial in encouraging
spontaneous interactions. While these informal interactions may be deemed
by the firm as more of a distraction than a benefit, such brief discussions can
be healthy and help promote a greater sense of cohesion among the profes-
sionals and staff at the firm. Because the open plan has few boundaries and
high visual access, however, the office can be very busy and may be distrac-
tive to some employees.

HOTELING. One of the more recent developments in office design, which
can be employed in either a closed or open office environment, is a concept
known as hoteling. Hoteling most often occurs in firms where the profession-
als spend a good deal of time traveling, such as analysts or consultants who
are often staffed on long-term engagements out of town. In such an environ-
ment, all of the offices and workstations are configured the same and are
wired to be compatible with any computers or related equipment that the
firm has issued to the professional. When a professional plans to be in town
and requires office space, he or she calls ahead to reserve an office or work-
station and any equipment needed.
Hoteling can help the professional services firm save significant money by
avoiding paying rent for office space that goes largely unused. However,
hoteling does not provide the professionals in a firm with their “own” office,
which is something that many professionals have come to expect. Thus, if the
firm is contemplating a hoteling office system, or some hybrid thereof, it
should do so in consultation with the professionals in the firm to eliminate
any discontent.

Finish-Out
The finish-out construction that needs to be completed before taking posses-
sion of the leased premises”often referred to as leasehold or tenant im-
provements”is the nonremovable installations such as walls that must be
built in order to meet the firm™s needs. New office space, which may consist
of only exterior walls and f looring, often requires substantial finish-out be-
fore occupancy by the tenant; on the other hand, existing office space, or
space that is going to be subleased, may include certain fixtures that the firm
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