Welcome to the Culture Shock blog where we’ll highlight cultural differences when meeting, negotiating, and constructing office environments in various global markets in order to achieve success with regards to transactions and employee satisfaction.
Legal Entity RegistrationBe sure when you are establishing a branch of your business in another country that you do your homework on establishing your legal entity. Most of the time your legal entity will be registered using the address of one of your offices in that country, but not all landlords have the right setup to allow you to register your business there. For instance, in Brazil I had attempted to register our tax entity to our serviced office at a well-known and respected provider. Even though they could support the legal entity registration, they were not able to support a tax entity registration. This led to significant legal costs and potential tax liability while the problem was resolved. Make sure to do your homework before you sign on the dotted line when deciding on the office you are leasing.
France LeasesIn France, and in many French-speaking countries, the standard lease structure is what is commonly referred to as a 3/6/9 lease. Basically this is a nine year lease with opportunities to terminate the lease at the end of three years and again at six years with proper notice. When negotiating in these types of leases, it is important to shorten your notice date restriction so you can decide whether to terminate as close as possible to the first termination date. In addition, it is advantageous to push for free rent in the first three-year term so as to best maximize your incentives, as you will have the option of terminating after the first term and renegotiating the lease, possibly obtaining more free rent. Sometimes you can work with a landlord to put high-incentive free rent in the second term. This allows the landlord to better ensure you will remain for the second three-year term, and allows the tenant to hedge against a deterioration of free rent due to a turn of market conditions in the landlord’s favor. Not always possible to get this as the landlord often wants to wait and see what the market will be like in three years, but I have attained this in the past to the advantage of both parties. Bottom line is that you should be researching alternatives in your market at least six months before your first notice date for termination to see if your deal is below market and should be kept, or if a termination/renegotiation would be advantageous to your position. Also, in France, there was a recent change in the calculation of the CPI (Consumer Price Index) for which annual increases are often based. Although it is preferred most times to lock in your rent rates and not be subject to a CPI, if you are unable to do so, make sure your CPI is tied to the ILAT index instead of the ICC index. The ILAT is expected to be more steady and at a lower rate than the older ICC index. Au revoir!!