May 06, 2019

7 Things Your Landlord Doesn't Want You To Know

By Don Catalano


7 Things Your Landlord Doesn't Want You To Know
When you enter into a lease negotiation with a prospective landlord, you want to give him or her the benefit of the doubt. No one wants to think the worst about another person, especially when you're excited about moving into an office and thrilled to have the search for the perfect space over. Unfortunately, commercial leases tend to favor landlords, and there may be some dark secrets lurking in the language of the contract, including:


1. Load Factor Calculation

To determine the rentable square footage that you'll be required to pay for, landlords use something called the load factor. There is no set equation for arriving at this figure, opening the doors for landlords to increase the square footage used for calculations and charge you more. Make sure to ask your landlord exactly is included in the common areas and double check the math.


2. What's Included in CAM

Common area maintenance fees or CAM are a normal part of a lease, but what's passed along to tenants through those fees can vary wildly. Get a breakdown of exactly what your landlord will and won't include in CAM calculations. Things like salaries, consulting fees, structural repairs, tax penalties and loan interest payments should be the responsibility of the landlord, not your company.


3. Rent Escalation Methods

Landlords hope that you won't take the time to carefully study the way in which your rent increases will be calculated. There are a number of ways that landlords can profit heavily from rent increases, such as choosing a base year where costs were low, adding unfair expenditures to operating expenses or choosing an obscure, highly volatile index to tie the rent to.


4. The Reason for Tax-Related Increases

When taxes increase for a landlord, CAM fees typically do as well. This is fine when the actual taxes your landlord pays have gone up, but you should never be expected to pay for special assessments like the cost of new sewer lines, income taxes, corporate taxes, payroll taxes and other taxes associated with your landlord's business.


5. The Definition of Nonstructural

Leases often say that tenants are free to make any alterations that are nonstructural; however, your and your landlord's definition of what is and isn't structural may not be the same. Simply changing a light fixture could result in a dispute with your landlord, so make sure to have the term 'nonstructural' defined in the contract.


6. You May Not Be Able to Sublet or Assign After All

If your lease requires you to get the permission of the landlord before subletting or assigning, you may find that you are unable to exercise this right in the future. The lease may say that the landlord promises to be 'reasonable’, but this term is so vague that it allows for your request to be rejected for nearly any reason.


7. You May Have to Pay Disputed Fees Up Front

Should you find yourself in a dispute with your landlord over rent or fees, your lease may require you to pay those costs and then sue your landlord. Language like this should be removed from leases whenever possible.


Here are some other good CRE articles to check out:

Simplifying Site Selection with Technology

6 Common Pitfalls to Avoid in Commercial Real Estate

5 Reasons to Pay Attention to Parking in Your Office Lease


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Topics: commercial real estate

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Don Catalano

Don Catalano