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7 Basic Terms of Philippine Office Leasing

Updated: Nov 10, 2021

1. Size (GLA vs NUA)

The size of your office space will come in two --- the Gross Leasable Area (GLA) and the Net Usable Area (NUA). Most landlords or developers in the Philippines base their rental rates on the GLA. The GLA includes common areas and unusable space, such as structural posts, that might have taken part of your space. The NUA, speaking for itself, is the size of the actual space you can use. If you take the NUA out of the GLA, you can get the percentage of your space's efficiency. It is a rare situation you will find a space with more than 95% efficiency in the Philippines thus if you do, it is highly recommended so you can maximize the space that your rent is paying.

2. Lease Term

The Lease Term is the span of time you will be in a lease contract with the landlord. The minimum lease term given of most landlords or developers is 3 years but some start at 5 years. Although rarely the case, they are also open to give tenants a lower lease term if they can reasonably negotiate why or if the brand of your company is something they want in their portfolio no matter how long or short the lease term will be.

3. Association Dues

Aside from the rent, always included in office leasing contracts are the association dues which are mainly the fee to pay for the maintenance of the building---utilities and property management essentially. The rate highly depends on the building grade and is consists of the service fee of the personnel needed for the operations as well as the maintenance or the upkeep of the building.

4. Escalation Rate

The Escalation Rate is the additional rent to be put on top of the current agreed rent on a yearly basis. Landlords in the Philippines usually require an escalation rate to beat inflation. It usually starts at 10% per annum but is negotiable highly depending on market conditions and the building lease performance.

5. Pre-termination

Lease terms for offices are usually guaranteed at either a minimum of 3 or 5 years depending on the landlord. However, pre-termination is not entirely impossible. Again, depending on market conditions and the building lease performance, this can be negotiated with the landlords on certain conditions. Perhaps a termination fee which is usually the forfeiture of the client's security deposit or finding a replacement tenant that can continue your lease contract.

6. Payment Terms

Landlords have different requirement when it comes to payment terms. This is always consisted of the advance rental and the security deposit. It can be 3 months advance and 3 months security deposit or maybe just 2 months for both. As you read your contracts though, be sure to check where the advance rental will be applicable. Some landlords will apply on the first months, while some will apply on the last months.

7. Handover Condition

Offices are usually handed over in three conditions in the Philippines:

A. Bare Shell - walls are either white painted or not, rough cement, open ceiling, AC system can be provided but there are instances that its not.

B. Warm Shell - walls should white painted, floors are smooth and ready to receive carpet tiles, AC should be provided with fully functional ceiling

C. Fitted or As-is-where-is - some tenants are given the freedom to leave their improvements in the space especially when the landlord thinks it is still usable for the next prospective tenant.

These are all basic lease terms that you need to familiarize yourself with. For you to be able to negotiate well, it is highly recommended to hire your own broker who will represent you in the negotiations as it is their expertise with their current knowledge of market conditions.


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