What Does the “E” Stand For?

Executive, Easy or EXTRA Expense

Most business people know that Executive Suites (or E-suites) represent a quick way of getting into an office or getting a new business established quickly. E-suites, conventional wisdom says, are an easy way for multinational companies (“MNCs”) to establish a sales and technical rep office in a new location—no long-term lease, quicker internal approval, low start-up costs, etc. With the rush of companies deciding to staff or expand personnel in distant, remote and unfamiliar markets, such as India and China, using E-suites seems like a simple decision. In short, E-suites appear to be an easy option for the corporate real executive (“CRE”) to locate an executive.

There are a number of traps that catch E-suite tenants.

While many business people appreciate the ease to review the relatively short E-suite lease, the short length is often accomplished by using a very small font. Problems arise because many tenants do not take the time to examine and consider each term included in that fine print. Often the fine print contractually obligates the tenant to certain financial responsibilities, while at the same time excludes certain services or landlord responsibilities that the tenant would normally expect to exist.

So what should the CRE or person identifying the office space pay attention to?

“E” is for Extra unplanned and very high Expenses to Extend a lease.

Many companies choose to use an E-suite because they are uncertain about the exact nature of their space requirements or business prospects, including how long the E-suite is actually needed. While many go into an Esuite with the idea of a very short term, a former executive at a major E-suite provider says that the tenant actually stays an average of 27 months. Extending an E-suite may be an expensive proposition for tenants due to several factors, including an automatic rollover provision. Instead, API Global recommends clients negotiate terms that allow the tenant to remain in the space when the initial lease term expires at the same rate so long as the tenant provides reasonable notice to the landlord. Of course, this lease provision should be negotiated when the tenant has leverage, i.e., before the tenant signs the original lease and moves into the space. Without such a provision, a tenant may be surprised to learn that extending a lease only a month or two could result in the lease and other support service expenses increasing by 50% or more! Beware: E-suite providers often consider extensions as new leases and previously negotiated services and fees could be lost if not specifically addressed in writing. An alternative approach to consider, negotiate a one- or two-year lease with an early exit at 6 or 9 months with minimal penalties.

“E” can mean Exceedingly high telephone Expenses.

One of the attractions of an E-suite is the all-inclusive nature of the arrangement. This benefit, however, can come with high costs. E-suite providers often charge high set-up fees. The Esuite landlord also “owns” the telephone numbers, which makes it inconvenient when moving out. Also, international calls can be up to 10 times more expensive than the actual cost of placing a similar call over a cost-effective mobile phone service. The use of a telephone number(s) that the tenant owns and forwarding calls to the E-suite operator can lower the costs/issues that a tenant faces when The International Solution Volume I, Issue 4 “E” stands for Extra Expense for:  Extending an E-suite lease  Telephone charges  Internet connectivity fees  Extra expenses already built into the E-suite lease  Exiting the E-suite lease Personal Computer Telephone Personal Computer Internet Phone Adapter Cable modem Telephone VoIP Solution to High Telephone Costs API Global 2540 N. First Street Suite 102 - San Jose, CA 95131 - Tel: (408) 232.9700 - Fax: (408) 232.9705 - www.API-Global.com Rev.: August 2007 Copyright © 2007 by API Global they exit the E-suite. Also Voice-over-Internet-Protocol (“VoIP”), whereby the tenant uses the Internet to make the call, can significantly reduce telephone charges, particularly for international calls.

“E” can also stand for Extra high Internet connectivity Expenses.

PC internet services are often bundled into an E-suite package and can be surprisingly costly, particularly as the number of users increase. The use of wireless technology to link multiple computers to the Internet can reduce the E-suite’s connectivity fees, thus providing a quick and easy solution.

“E” is for Extra Expenses that are already built into the Esuite lease.

Before signing and moving into an E-suite, negotiate all service charges. Otherwise the tenant could be surprised by these “standard” fees, e.g., up to $100/hour for a conference room. After moving into an E-suite, review invoices and bills each month (without delay) and contest charges! Don’t pay for service charges that other E-suite tenants incur, e.g., copy charges. In fact, negotiate and include in the lease an allowance for these services, e.g., x number of hours for conference rooms.

“E” can mean Exiting an E-suite is Expensive.

The same short lease that made it easy to move into the E-suite often contains a number of tenant-unfriendly exit provisions in the fine print. Whether a tenant needs or uses certain services upon exiting a lease, many leases contain provisions that allow the landlord to unilaterally charge the tenant hundreds or even thousands of dollars. Examples of these include “restoration” expenses or telephone call and/or mail forwarding fees. Tenants often discover this trap only after they receive their invoices and after the E-suite provider reduces a tenant’s deposit by the invoice amounts. Once again, the solution requires a careful reading of the lease before signing and negotiating provisions to minimize these types of expenses. Negotiate up front how much of a deposit (sometimes called a “retainer”) to make, e.g., equal to the first and last month’s rent. Also negotiate and add to the lease the length of time that the deposit can be held after the lease expires.

“E” may not be for Everyone.

E-suites are an attractive option for companies looking to open an office in a hurry. When one considers the full costs of serving and exiting an E-suite, this option may become less desirable vs. a “dedicated” office, particularly as a company adds more employees (over 5) to the E-suite for the reasons mentioned above.

How can MNCs address today’s challenges as they establish, expand or redeploy operations in Asia, Latin America or Europe?

The solution involves selecting the right business partner, planning ahead to gain flexibility (and negotiating power), and, of course, through lease structuring and negotiating the best possible terms. To learn more about how API Global can help companies act quickly and successfully, including securing temporary or permanent offices or facilities for 5 to 500 or more employees, please contact us today.