We previously reported that Ozon, the largest online retailer, is planning to establish a permanent presence in Moscow City , but is currently considering other options. Now, the company has revealed details of its lease for its existing space in the Naberezhnaya Tower . The office is leased from City Center Investment (Netherlands), a subsidiary of ENKA (Turkey), which has developed many properties in Moscow City. The full contract is published online by the U.S. Securities and Exchange Commission (SEC).
How it was
According to a publicly available document, Ozon, or more precisely its subsidiary Internet Solutions, agreed to a fixed rental rate in dollars, while the vast majority of organizations try to avoid this and instead have it fixed in rubles. As a result, the company's annual rent for the premises costs $6.8 million. However, to be fair, it should be noted that payment is made in the national currency at a pre-agreed exchange rate.
The lease in question concerns a 1,860 square meter office space, signed in 2018 and expiring in March 2019. Upon expiration, the contract was extended until August 2025, with an automatic renewal option. Ozon had the option to double the size of its headquarters between April and October 2019. However, authorized representatives did not disclose whether the company took advantage of this opportunity.
How much does it cost to rent an office at Ozon?
The agreement signed back in 2018 obligated the tenant to:
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pay the landlord $1.67 million by the end of the year;
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reimburse the landlord's expenses in the amount of $11.9 thousand for the provision of services of a cadastral engineer and the entry of a long-term contract into the Rosreestr;
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post a $1.6 million deposit that the landlord could use to cover potential damages;
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cover operating costs.
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In the future, the company is obliged to commit
Payments were to be made quarterly at a rate of $500 per square meter of rented space. Additionally, the rate was to be indexed by 5% annually on June 1.
Although the contract stipulated the price in dollars, all payments were made in the national currency at a rate of 58.5 rubles per US dollar. However, if the Central Bank's weighted average exchange rate increased by 15% or more compared to the same figures for the previous quarter, either party could terminate the contract within 2-6 months.
Thus, in 2019, the average weighted dollar exchange rate settled at 64.7 rubles, and in 2020, it reached 72.15 rubles. However, the press service of the largest online retailer did not report whether there had been any changes to the rental rate.
Operating costs
Ozon agreed to cover the cost of operating services. These include:
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cleaning of premises;
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hot water supply and space heating;
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electricity;
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elevator maintenance;
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garbage removal;
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air conditioning and ventilation;
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window cleaning performed twice a year;
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themed decorations;
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snow removal;
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landscape design.
City Center Investment ordered the tenant to pay $780,000 to cover operating expenses through the end of 2018. Thereafter, the company was required to pay $135 per square meter per year.
This price includes air conditioning and ventilation on weekdays from 8:00 a.m. to 7:00 p.m. If necessary, the system's operating period can be extended. However, in this case, the tenant will be charged $110 for each additional hour.
Parking fee
In addition to office space, City Center Investment provided Ozon with four parking spaces in the business center's parking lot. The company was required to pay $7,000 for their use until the end of 2018. Subsequently, each space would cost $5,200 per year.
Additionally, the online retailer was allocated one hundred parking spaces in a multi-level parking garage under the Third Transport Ring exit. The annual rent for each space was $4,800.
Consequently, Ozon's headquarters maintenance costs are $1.45 million, or 85.3 million rubles per year. Adding the $5.4 million (315.9 million rubles) in rent and operating expenses, the Moscow office space consumes $6.85 million annually from the company's budget. This equates to approximately 400 million rubles. Adding the cost of parking, the annual payment increases by another $500,800.
Is it possible to sublease
According to the agreement, the tenant has no right to sublease the leased premises without the consent of City Center Investment, except for its own affiliated entities. Ozon cannot enter into sublease agreements with:
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other ENKA tenants;
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entities conducting negotiations with the landlord regarding the rental of premises;
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organizations with diplomatic immunity;
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entities whose work conflicts with Ozon's non-competition obligations with other tenants.
In other cases, subleasing is permitted. However, the rate cannot exceed the original rental price of the premises. Otherwise, the company will be subject to a penalty. Only entities affiliated with online retailers are permitted to enter into sublease agreements with them at a rate 5% higher than the original rental price.
A Strange Decision: Fixing Rent in Dollars
The disclosure of lease details for the Naberezhnaya Tower and Ozon's agreement to lock in the price in dollars is an unusual decision. After all, even after the ruble's collapse in 2014, the largest office space tenants have been making every effort to avoid dollar-denominated contracts.
VimpelCom, which operates under the Beeline brand, even initiated legal proceedings against its landlord, Tizpribor, which leased space in the Hermitage Plaza business center. It sought to have the court fix the exchange rate in the contract at 32-42 rubles per dollar. Ultimately, both parties reached a settlement, but the tariff remained in dollars, and Beeline gave up some of the leased space.
Yandex, for its part, also sought to avoid dollar bondage. Russia's largest search engine had its office in the Krasnaya Roza Business Center. Initially, the lease agreement was also denominated in dollars. After the events of 2014, the tenant attempted to buy the landlord, but the deal fell through. After the lease expired in 2021, Yandex decided to renew it, but the new contract was already drafted with the price stated in the national currency.
Mail.ru Group, which became part of VK, was luckier. Back in 2016, the company managed to reach an agreement with its landlord to convert the rent for its office in the Skylight Business Center into rubles.
