Key Takeaways
- Office leases are long commitments for companies at unpredictable stages.
- Personal guarantees on office leases are a significant founder liability to negotiate around.
- Flexible workspace has gotten significantly better and should be the default for early-stage companies.
Office space negotiation is one of the decisions that most early-stage founders make without adequate preparation, often because real estate transactions feel like a distraction from building the company. The result is frequently a lease that is too long, in a space that is too large, at a rate that was negotiable.
The Flexibility Premium
Early-stage companies are in a state of rapid change. The team size, the culture, the working model, and sometimes the city of operations can all change in the first two years. A five-year lease signed in month six based on assumptions about team size and working patterns is a commitment that will be wrong in important ways by year two.
Paying a premium for a shorter lease or flexible terms is almost always justified for an early-stage company. The premium is the price of optionality, and optionality is what early-stage companies most need to preserve.
The Personal Guarantee Problem
Landlords of commercial space routinely ask early-stage companies for personal guarantees from founders when the company does not have the credit history or balance sheet to stand behind the lease independently. A personal guarantee makes the founder personally liable for the lease obligations if the company cannot pay. Negotiating the scope and duration of personal guarantees, or eliminating them in exchange for a larger deposit, is one of the highest-leverage items in any commercial lease negotiation.
"Sign the shortest lease you can negotiate. The company you are in month six is not the company you will be in month eighteen."