These are the crucial first steps to take when disaster strikes and your office building or space is damaged.
WHAT TO DO WHEN DISASTER STRIKES
During times of emergency the last thing business owners want to deal with is finding temporary office space. Yet that was the position many Houston companies found themselves in the wake of Hurricane Harvey last year. When any disaster strikes the most important tasks involve our personal lives: family, friends, home, etc. The next priority will often be the family business. The following should be the first steps taken by business owners during these tough times.
SPEAK TO YOUR LANDLORD OR PROPERTY MANAGER
Speak to your Landlord or Property Manager to understand the condition of the building and extent of any damage. If the building has sustained damage it may not be accessible for conducting business for a period of time. Often the power generation and related equipment are installed on lower levels and basements, and are thus prone to flooding. The elevators are another vulnerable area of any office building. These are especially essential for mid and high rise buildings with many floors and a high number of tenants. Maintenance, repair, and replacement of damaged parts can often keep elevators down for weeks or months at a time.
The property manager should be able to provide updates on the status of the building and timelines for resolving any issues. Keep in mind that access to the building may be restored, but the condition of your suite could be a different story. If the office space has become untenantable, entirely or partially, it will be important to review the lease agreement to understand what options the business owner has available to them.
REVIEW YOUR LEASE AGREEMENT
If your office building has sustained damage the next step will be to review your lease agreement. There are provisions in your lease covering exactly what happens if building services are unavailable, as well as unexpected casualties from fire, storms, flooding, and more. Depending on how your lease was negotiated you may be entitled to abatement of your rental expense during these periods. Typically there is a section of the commercial office lease titled Building Service, Building Essential Services, or something similar – this is where you will want to look first. These services include passenger elevator use, heating & air conditioning (HVAC), utilities including electricity and water, etc. These lease provisions will dictate if, and when, any rental abatement will occur. Rental expense should be abated in proportion to the amount of your space which is affected and not suitable for conducting business. Keep in mind that all of these items are negotiable at the time the lease is signed. It is important to consult a tenant representation broker during the leasing process to ensure the lease agreement is properly structured to protect the tenant.
If damage to the building is significant the landlord may need to submit insurance claims and await payments before completing repairs. It may be necessary for companies to locate a suitable location to conduct their business while repairs are made. In these instances finding temporary office space will be an important next step.
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FINDING TEMPORARY OFFICE SPACE
If your building or space is untenantable, and the landlord believes it will remain inaccessible for an extended period, it will be necessary for tenants to begin finding temporary office space. It is highly recommended to consult your commercial real estate broker to assist with this process, especially in times of widespread disaster where many commercial properties and countless businesses may be affected. In these times demand will be high for short-term space and acting quickly will be very important. The spaces in the best condition, considered “move-in ready”, will be taken off the market rapidly.
Finding temporary office space which can be occupied without significant changes or improvements will be an important goal for your broker. With temporary space you are hoping to locate a move-in ready space which can be occupied with short notice and will not require a long term lease commitment. Under normal circumstances a landlord does not look favorably on short term lease arrangements, but under disaster and emergency situations this is often relaxed, especially if the space does not require much work to occupy. This will require business owners to be flexible on their requirements and understand that the space is for temporary use only — not a long term solution.
For small to mid-sized businesses there are a number of co-working services which may be available. These include the industry giants like Regus and WeWork, but there may also be a number of smaller operators in a given market. There are also co-working and temporary office space platforms such as Pivot Desk and Liquid Space which can be useful resources.
A NOTE ABOUT TERMINATION OPTIONS
If your current lease agreement includes termination options when repairs will take a long time to complete, you have more flexibility to locate a suitable space. This information is typically located in the Fire & Casualty provisions of the lease agreement. A common length of time is 180 days from the date of damage occurring. If the landlord estimates repairs will take longer than 6 months there is typically language allowing termination of the lease. This right to terminate may be the landlord’s exclusive right, but hopefully the tenant’s commercial real estate broker negotiated the same option for the tenant as well! With a termination option the tenant will have the option of locating temporary space or relocating directing into a longer term arrangement in a new building.
In cases where significant damage has occurred, the challenge will be to complete the relocation process in a very short period of time. At Oxford Partners we recommend clients begin the relocation process at least 6 months prior to lease expiration. In case of a disaster, business owners will have a very short time period to work with when locating new space. It is key to work with a professional in the commercial real estate industry to navigate this process as quickly as possible, and find a new home for your business.
SUMMARY
When disaster or any unexpected issues occur it is important to act quickly and understand your lease. Hopefully it is clear from this article that negotiating the lease thoroughly, and with professional representation, can be a key to success when the unexpected becomes reality. No one expects for these things to happen, but as a business owner you cannot put your head in the sand and hope they won’t. Those who are prepared will have the early advantage when assessing damage and finding temporary office space.
If you are searching for commercial office space and need assistance, contact me today. I’ll prepare a customized report of market options based on your targeted profile and requirements.