Feb 24, 2020

5 Hidden Costs to Look for in Your Office Lease

By Don Catalano

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5 Hidden Costs to Look for in Your Office Lease
If you've signed an office lease, you know that your rent isn't really your rent. In some buildings, you pay operating costs on top of your rent. You're probably aware of the load factor that makes you pay for your office space and for what the landlord considers your "fair" share of the common areas of the building. And you might also have to pay for parking. But there could be even more hidden costs lurking in your office lease.  Work with your tenant representative to see if you could be on the hook for any of these five additional expenses.

 

1. Management and Admin Fees

If you have a triple net office lease, you can expect to pay the costs of running the building. Of course, this includes expenses like general repairs, utilities, insurance and property tax. It might also include some of the owner's expenses. Frequently, your lease will require you to pay the cost of the company that your owner uses to manage the property. Sometimes, the owner will own that company so that he or she can double dip!  Furthermore, leases can also include administrative fees. Common in triple net buildings, these admin fees get tacked on to the common area maintenance charges as an additional percentage. They're essentially a bill that the owner gets to send you for sending you a bill.  Really!

 

2. Office Lease Expense Stops

On the other hand, if you have a full-service gross lease where you think you pay a single monthly payment to the landlord for him or her to handle all of the expenses of the building, you might actually owe more. Many full-service leases have a cap on what the landlord will pay for you. They might set their limit based on a dollar amount or based on what they paid in a specific year (technically called a "base year"), but the impact is the same. When the expenses go over the limit, they stop paying them and you start.

 

3. Capital Improvements

One of the benefits of an office lease is that in exchange for paying for the right to use the space, you don't have to own the space. Your capital doesn't get tied up in a building and, while you might have to fix a leaky sink, major repairs to the building shouldn't be your responsibility, right? Wrong. Read your office lease carefully, because the owner might have the ability to charge you for your pro-rata share of the cost of capital improvements to the building.

 

4. After Hours Charges

If your employees are staying late and coming in on Saturday or Sunday, they probably expect that the air conditioning will work in summer and that they can take the elevator -- instead of the stairs -- to your office on the 35th floor. Your landlord might have a different perspective. Many buildings have after-hours charges where you pay when your employees need basic building services. If your company has set, traditional hours, these might not be a big factor, but if you have a lot of evening and weekend usage, these charges could add up quickly.

 

5. Hidden Tenant Improvement Costs

The tenant improvement allowance that you get from your landlord when you sign your office lease can also carry hidden costs. Many leases have stipulations on what you can build, how you can build it, and who you have to use as a builder. Some owners require you to use their construction team as a general contractor. Others might require you to install certain fits and finishes that suit their needs -- but not yours. Without understanding the implications of these requirements, you could end up spending more on your build-out than you expect.

 

Here are a few other articles we think you'll enjoy:

Negotiating Your Commercial Lease 101

5 Reasons to Pay Attention to Parking in Your Office Lease

10 Modern Features to Look For When Leasing Office Space

 

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Topics: office lease

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Don Catalano

Don Catalano

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