Our great friend and fellow ITRA member recently wrote an excellent article about hidden costs in tenants office leases. Read on for Buddy Francese with Mutual Trust Corporate Real Estate’s article.
During a recent call, a national credit tenant with numerous offices discussed an expansion in Austin, Texas. The head of IT highlighted a crucial point: the risks of being locked into an agreement with an off-net internet provider. He said that if the tenant needed to terminate the lease early, it could cost an additional $50,000.
This conversation uncovered a potential blind spot in lease negotiations that could cost tenants thousands. My role as a tenant representative is to help clients navigate these complexities to avoid hidden costs.
Understanding On-Net vs. Off-Net Internet Providers
Knowing the difference between on-net and off-net internet providers can affect both cost and flexibility. This is crucial if you might need to end your lease or internet service early.
| ON-NET PROVIDERS | OFF-NET PROVIDERS | |
| Have infrastructure like fiber-optic cables already connected to your building | Lack direct infrastructure connections and may lease lines or install new equipment | |
| § Lower Costs
Existing infrastructure means lower or included installation costs. § Faster Setup Quicker installation due to pre-existing infrastructure. § Potentially Lower Termination Fees Termination penalties may be reduced since the provider’s network is integrated. § Better Reliability Generally more reliable service and quicker support. |
§ Higher Costs
New infrastructure or leased lines can result in higher fees. § Longer Setup Times Delays due to coordination or installation. § Higher Termination Penalties Significant penalties for early termination, especially if substantial investment was made. § Less Control Over Service Quality Service quality and response times can be affected by reliance on third-party infrastructure. |
Implications for Lease Negotiations
- Evaluate Service Providers: Check which providers are on-net or off-net before signing a lease. This helps anticipate costs and potential service issues.
- Negotiate Terms: If an off-net provider is necessary, negotiate installation costs and termination penalties. Consider requesting a cap on fees or a clause allowing service transfer.
- Consult IT Experts: Work with your IT team or a consultant to understand the technical and financial implications of each provider. They can also assess reliability and performance differences.
- Consider Future Needs: Evaluate your long-term plans and the likelihood of moving or upgrading your internet service. On-net providers offer more flexibility if your needs change.
Understanding whether an internet provider is on-net or off-net can significantly impact your leasing decision. As a tenant representative, my goal is to ensure you are informed and prepared to negotiate favorable lease terms. Avoiding hidden costs like those associated with off-net providers is one way to make smart, cost-effective decisions for your business.