Dec 19, 2014

5 "Gotchas" in Your Office Lease

By Don Catalano


Commercial Office LeaseMany industries have their own special language and ways of doing things and commercial real estate is no different. When you're a tenant looking at a proposed office lease, these industry quirks can add up to real costs. Here are five things that you should be looking carefully at your lease documents to find.

Rent on Invisible Space

How big is a space that measures 100 feet long and 50 feet wide? If you think the answer is 5,000 square feet, you're in for a surprise when you look at your office lease. Typically, an office that measures 100-by-50 is between 5,500 and 6,000 rentable square feet. Those extra 500 to 1,000 square feet come in the form of "common areas".

Common areas are all of the spaces in the building that aren't part of your office, but that benefit you. They include hallways, restrooms and lobbies. While they might be invisible when you're sitting at your desk, imagine it would be like to get to work in your 20th floor office if you didn't have a lobby, an elevator lobby and a hallway. Because of their value, landlords add your share of their area onto your office's square footage when they calculate your rent.

Building Expenses Beyond Rent

There's a lot more to your rent than just your rent. If you have a triple net office lease, you're responsible for paying your share of all of your building's operating expenses in addition to your rent payments. However, even a full service gross office lease that supposedly has the landlord paying for everything might have a hidden surprise. Some gross leases require you to pay for janitorial. Others have cost escalators built in to help the landlord cover future increases.

Configuration and Customization

Unless you're able to find a turnkey space that is perfect for your needs as-is, you're probably going to have to work with your landlord to figure out how to have your space built out. Typically, landlords give you an allowance and if you spend more than that, you will be responsible for the cost. However, even in a seemingly simple arrangement like that, there are hidden complexities.

  • Will you have to build to the landlord's (potentially expensive) standards?

  • Do you have to use a preselected contractor?

  • How will the funds be disbursed?

An Uncertain Future

No matter what you negotiate today, things could change tomorrow. A rent escalator that ties your occupancy costs to the Consumer Price Index might seem fair today, but might not be after a few years of 1970s-style inflation. Operating costs could also fluctuate more than you expect. A spike in heating oil prices or a property tax reassessment could end up getting passed through to you and raise your occupancy costs by multiple dollars per square foot every year. If you don't have any caps on increases, you could be taking a great deal of risk.

Hidden Location Costs

Finally, beyond the real estate costs, every time you sign a new office lease, you open your business up to a broad range of new expenses. Many jurisdictions require you to get a business license, which can carry additional costs. Salaries and benefits may be different than what you expect. Even soft costs -- like bringing in weekly lunches for your team -- can fluctuate from place to place. While these are not part of your office lease expenditures, these hidden location-tied costs can balloon your occupancy cost, so budgeting for them is important.


More Commercial Office Lease articles:

Protecting Yourself from Signing the Wrong Office Lease

Parking and Your Office Lease

Commercial Tenants Guide to Office Leases

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Don Catalano

Don Catalano