Lease Negotiation Checklist for CFOs in the San Fernando Valley

As a fixed line time on a company’s financials, Commercial leases represent significant financial commitments and operational impacts for mid-size companies, particularly in dynamic markets like the San Fernando Valley. The local office market is in flux – recent data shows the Valley’s overall office vacancy hovering around 25% with asking rents topping $3 per square foot​. High vacancies should give tenants leverage, yet landlords are still pushing rent increases.

In this environment, a CFO must be diligent. Ensuring advantageous lease terms is essential not only to controlling costs but also to enabling flexibility and future growth.

This checklist highlights some critical aspects to consider before signing or renewing a commercial lease.

✅ Rent and Escalation Clauses

Base rent is the foundational cost of your lease, and escalation clauses dictate how that cost grows over time. In the San Fernando Valley’s market, annual rent escalations are common.   The standard 3% annual increase for many years has inched upwards to 3.5% to 3.75% annually. For a CFO, predictable rent expenses are critical for budgeting and financial planning. Even in a high-vacancy market, many landlords lock in steady increases to escalate their income streams, thereby increasing the value of their assets.

Risks if Overlooked: If you gloss over escalation clauses, you could face compounding rent hikes that outpace market rent or your own revenue growth. Over a long lease, an unchecked 3-4% annual increase can result in a significant rent premium. In a volatile market, some leases tie escalations to inflation indices – without a cap, this could mean unexpected spikes.

✅ Lease Term and Renewal Options

The lease term (length of the lease) and renewal options determine your company’s flexibility and long-term obligations. CFOs need to align lease length with the company’s strategic plan. A mid-size firm in Sherman Oaks or Burbank experiencing rapid growth might favor a shorter term or built-in expansion options, whereas a stable firm might lock in a longer term at a favorable rate. Renewal options are essentially your safety net for staying in place – they give you the unilateral right (but not obligation) to extend the lease under pre-set conditions. An Option is soley to the Tenants benefit.

Risks if Overlooked: If you underestimate future needs, you could get stuck. A lease term that’s too long without exit options can hinder your agility if the business downsizes or relocates. Conversely, a term that’s too short can put you at risk of steep rent hikes or forced relocation at the end of the term. Missing a renewal option window is another common pitfall – many options require notice 9-12 months in advance. If a CFO loses track of this and misses the deadline, the option could lapse, exposing the company to market rent increases or even losing the space. Also beware of holdover penalties: if you stay past lease expiration without a new agreement, penalties in SFV leases can be as high as 150%–300% of rent​ – a costly mistake for any finance chief.

✅ Tenant Improvement (TI) Allowances

Tenant Improvements (TI) are the customizations or build-outs needed to tailor a space to your company’s needs – think office layouts, conference rooms, specialized electrical or plumbing for a medical office, etc. Build-out allowances are funds the landlord provides to cover (part of) these costs. For CFOs, TI allowances are essentially upfront savings – every dollar the landlord pays is a dollar the company doesn’t have to.

Risks if Overlooked: If you sign a lease without sufficient TI allowance or clear build-out terms, you could be hit with major out-of-pocket expenses. Imagine expecting to retrofit an office for $50,000 only to find the allowance was $20,000 – that $30k difference comes straight out of your capital budget. Overlooking build-out timing and responsibilities can also delay your move-in (if the lease isn’t specific, a landlord might drag their feet finishing work, costing you rent on an unusable space).

✅ Operating Expenses and CAM Charges

Operating expenses (including Common Area Maintenance fees) are the additional costs you pay for property upkeep – taxes, insurance, utilities, janitorial, landscaping, etc. These CAM charges can add a hefty sum to your monthly rent, especially in multi-tenant properties. For CFOs focused on the bottom line, understanding and controlling CAM is just as important as the base rent. In Southern California, CAM charges have been rising due to higher property taxes, increased labor, insurance  and maintenance costs, so careful review is crucial.

Receiving your Base Year cost (the first year of the lease the cost of operating the building) is critical, as the Base Year cost is compared to all future year’s operational cost. 

Case History:   Our nonprofit client was delivered an invoice for $5,000.00 for Operating Expenses increases.  The Landlord used the wrong Base Year.  Our client was not responsible for the $5,000.00.  Had this mistake by the Landlord not been noted by our client, this $5,000.00 error would have compounded  each and every year for the seven year lease term, resulting in significant dollars that were not required under the lease.

Risks if Overlooked: Ignoring CAM clauses can lead to unexpected expenses. Landlords might aggressively pass through inappropriate costs, such as capital improvements or inflated management fees. Without clearly defined limits, annual CAM charges could spike unpredictably, leaving you responsible for unexpected repairs or upgrades. Vague lease language could also cause you to inadvertently pay double for certain expenses, resulting in significantly higher costs and limited recourse.

✅ Sublease and Assignment Clauses

Subleasing or assigning your lease can be a lifesaver if your space needs change. These clauses dictate whether and how you can transfer all or part of your space to another company. For CFOs, sublease rights provide a financial backstop – if you have excess space or need to exit early, you can recover some costs by subletting to another tenant. In dynamic areas like Woodland Hills or Encino, companies often evolve, and a space that was perfect in 2023 might be half-empty by 2025; subleasing converts that unused space into cost recovery.

Risks if Overlooked: A lease without flexible sublease/assignment terms can turn extra space into a stranded asset. Some landlords restrict subletting severely (or charge a hefty profit share on any sublease income). If you don’t negotiate this upfront, you might discover that you need landlord’s consent for any subtenant, and they can refuse arbitrarily – leaving you paying for space you don’t need. Even worse, without assignment rights, if your company is acquired or merged, the lease could default because you technically “assigned” it to the new entity without permission.

✅ Parking and Accessibility

Parking and access provisions outline how many parking spaces your employees and clients can use, whether parking is free or paid, reserved or unreserved, and what access you have to the building (hours, security, etc.). CFOs need to pay attention to this because parking can carry significant financial and productivity implications. A great lease rate means little if half your team can’t find a parking spot or if you’re shelling out thousands in unexpected parking fees.

Local nuances matter: for instance, Woodland Hills offices often boast high parking ratios (e.g. 4 spaces per 1,000 sq. ft.), which is a perk that tenants should capitalize on, whereas older buildings in Sherman Oaks might have tighter parking and charge extra for additional spots.

Risks if Overlooked: Ignoring parking clauses can leave you short on spaces or facing unexpected fees. For example, a lease promising 2 spaces per 1,000 sq. ft. when your actual need is 4 could force you to rent costly off-site parking or reimburse employees. Unanticipated monthly parking charges or guest validation fees also impact your bottom line. Additionally, neglecting access provisions—like 24/7 building entry, HVAC availability, and security—can result in employee frustration, productivity losses, and unforeseen expenses.

✅ Exit Clauses and Early Termination

Business conditions change – especially in vibrant markets like the San Fernando Valley. A termination right (early exit clause) is essentially an insurance policy for your lease obligation. It gives a tenant the ability to break the lease under specified conditions (often after a certain date and with a fee). For CFOs, having a planned exit strategy means reduced financial risk if the company needs to downsize, relocate, or even gets acquired.

Risks if Overlooked: Without a termination or escape clause, you’re on the hook for the full lease term no matter what. If your business must pivot or the location no longer works (imagine your Chatsworth facility becomes too small or remote after two years), you may face paying rent on empty space or negotiating an expensive buyout with the landlord.

Advantages of Tenant-Only Representation from Mazirow Commercial Inc.

Mazirow Commercial Inc. specializes exclusively in tenant representation, avoiding conflicts inherent in dual-agency arrangements. This unique positioning ensures your interests are prioritized, and negotiations are free from landlord biases. Mazirow’s extensive market expertise provides strategic insights, enabling CFOs to secure lease terms beneficial for long-term business stability and growth.