When you're conducting an audit of your commercial lease portfolio or comparing a number of prospective offices for rent, you can't simply consider rent. A lot more goes into the occupancy costs for a space than just what you pay to occupy your space. Read on to learn more about the occupancy costs that you should keep in mind when reviewing leases.
1. Rent
Rent accounts for the largest portion of your occupancy costs. As you study the lease, it's important to consider not just the base rent but how the rent may change over time. Most leases include language that allows landlords to raise rents. In some cases, the increases are scheduled and will occur in a fixed amount at certain points in the lease, such as annually. Landlords may also tie rent increases to variable indices, such as the Consumer Price Index.
With this structure, your rent increases will be unpredictable. If you are signing a lease that uses an index for rent escalation calculations, insist on having a cap added to prevent sudden extreme spikes in rent.
2. Insurance
If you have a double or triple net lease, you'll be responsible for paying a portion of your landlord's property insurance. No matter what type of lease you have, your general liability insurance factors into your total occupancy costs. Keep in mind that location is considered when calculating liability insurance premiums. It's a good idea to receive quotes from your preferred provider for each office that you're considering, so you can accurately calculate costs.
3. Taxes
Tenants cover a portion of property taxes with single, double and triple net leases. As a result, property tax reassessments can lead to sharp increases in occupancy costs. To help anticipate these changes, ask the landlord when the building was last assessed and if there are any reassessments already scheduled.
4. Utilities
Unless you have a gross or full-service lease, utilities will be an occupancy cost separate from your rent. Fortunately, you can have an impact on these costs by adopting sustainability measures and encouraging your team to follow them.
5. Building Upkeep Costs
Most commercial tenants are obligated to cover all or some of a building's upkeep and maintenance costs. Whether these expenses are included in your rent or not will depend on the type of lease that you have. In addition to base costs for maintaining the common area, be sure to find out about any additional fees for janitorial services, garbage removal, recycling, indoor plant care, landscaping and snow removal. Security service fees are usually included in maintenance costs as well.
6. Extra Fees
As you study the lease, keep an eye out for fees that the landlord assesses outside of rent and common area maintenance. You may be required to pay fees for parking, property management or for displaying signs outside or inside of the building. Another hidden fee is a repayment of rent abatement. If your landlord is offering you free rent at the start of your lease, make sure you won't be required to pay it back when you vacate the space or renew.
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Negotiating Your Commercial Lease 101
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