Romanian Market Standards
Trends & Standards – Acting on behalf of landlords and tenants in hundreds of leases over more than ten years, we were given the opportunity to watch the Romanian office leases market evolve and its trends crystalize into standards. Below a brief summary of what’s market practice in 2019.
Before Moving In
A positive site visit leads to the execution of Heads of Terms, a non-binding document summarizing the parties’ preliminary commercial agreement.
The first draft Heads of Terms comes from the landlord and provides the main commercial terms and conditions agreed by the parties (premises, rent, term, security, insurance, incentives etc.) and the deadline for executing the Lease Agreement.
The first draft Lease Agreement is provided by the landlord’s lawyers. The standard draft is created by the landlord’s lawyers during the development phase of the project, being updated during the life of the project, if and when needed. Recent updates have been focused on GDPR provisions, while the previous focus was on the split of fire prevention liability between the parties.
Some tenants will require, at this stage, copies of the ownership deed of the landlord over the premises and of other relevant documents such as energy performance certificate and permits needed to operate the premises as per the legal requirements (fire security permit, civil protection permit and, if the case, functioning permit and CNCIR permit for elevators and pressurised containers). Landlords will check the background of the prospective tenants and their financial position.
Negotiation of the Lease Agreement is followed by its execution and its registration with the Land Book. Then, the security in favour of the landlord is created (as deposit or letter of bank guarantee), insurance policies are presented by the tenant, the premises are measured as per BOMA standards and handed-over to the tenant to perform its fit-out (a building permit and a revised fire security permit might have to be obtained by the tenant, depending on the nature of the works and the assessment of the local authorities).
Standard Lease Terms
Premises – The leasable office area is comprised of the net leasable area plus a pro rata part of the common areas of the building – the so-called add-on factor, calculated by dividing the common areas of the building to the total built area of the building, the result being between 5 and 25 %. Sometimes, for commercial reasons, as an incentive to its tenants, the add-on factor is set by the landlord lower than the actual figure. Apart from the office area, the tenants may lease parking spaces and storage areas.
Rent – Rent is expressed in Euro (usually between 5 and 25 Euros per sq. m. of leasable office area), its payment being done monthly, in advance, at the Euro/Ron exchange rate communicated by the National Bank of Romania for the payment date.
Indexation – Rent is annually indexed (if it leads to an increase) with the Harmonized Consumer Price Index (Euro average inflation – usually EU28 – current composition), as published by Eurostat.
Service Charges – In addition to the rent, the tenant shall pay service charges, also expressed in Euro per sq. m. of leasable area (between 2 and 5), charges that comprise all the common expenses of the building (including local taxes and insurance – the triple net lease being the standard on the market). The service charge is calculated pro-rata with the leased office area and is payable together with the rent. The landlord covers the services charges related to the unleased premises in the building. Service charges are
payable based on the expenses estimated for the current year and are subject to an annual regularization, the tenant being granted access to doublecheck the calculations done by the landlord (open book).
Utilities – The tenant will also cover the expenses related to the utilities consumed in the leased premises, either metered individually or metered for the entire building and split by the landlord pro-rata.
Security – The tenant is required to create a security in favor of the landlord, either as a deposit or as a letter of bank guarantee, having a value representing 1 to 6 months of rent and service charges (depending on its financial standing of the tenant, the standard being 3 months). The security may be used by the landlord to cover any outstanding amounts due by the tenant and will be reimbursed/returned 60-90 days after the termination of the lease agreement, after deducting all due and unpaid amounts.
Lease Term – Leases are concluded for a binding term, generally of 5 years. Fixed or rolling break options are granted usually after the initial 3 years of the lease term. The premises are handed over to the tenant as open space, prior to the lease term commencement, to allow the tenant to perform its fit-out. For this period, generally around one month, the tenant will not pay rent, but it will pay service charges and utilities.
Damages – The binding lease term is backed by damages due to the landlord in case the lease agreement is terminated prior to the term lapse (except if grounded on landlord breaches), namely damages equivalent to the rent and service charges that would have been due until the end of the term (or the first brake option available to the tenant). The tenant may terminate the lease only in extraordinary circumstances (for example (i) if the utilities in the premises are interrupted for more than 2 weeks or (ii) more than 50% of
the premises are is unusable for more than 1 month).
Incentives – Landlords usually grant the tenants two types of incentives (one of them or even both): a fit-out contribution (between 50 and 150 Euros per sq. m. of leased area) and a rent-free period (between 1-12 months, spread during the lease term).
Insurance – The tenant will conclude and provide to the landlord, before handover of the premises, an insurance policy covering third party liability.
Right of First Refusal – Sometimes the tenant is granted a right of first refusal to expand in the adjacent premises in the building, this right being exercised with the observance of other similar rights granted to other tenants (priority being set as per the date the rights were granted).
Term Extension – The parties may agree to extend the initial lease term, this being done usually in the market terms at that time, not in the same commercial terms.
Return of the Premises – Premises should be returned to the landlord in the same open space layout, after the tenant fit-out has been removed and the premises were repaired and cleaned. The cost of the reinstatement is usually around half of the initial fit-out cost.
Contributing Advisors
