Jan 06, 2020

Hidden Commercial Leasing Costs Tenants Should Know

By Don Catalano

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Hidden Commercial Leasing Costs Tenants Should Know
There's a lot more to your lease than just the rent and CAMs. To understand what you are paying, you need to carefully review what your lease includes, how expense reimbursements get calculated and how your space gets measured. At the same time, you could end up responsible for expenses that aren't even a part of your lease -- or your plan.

 

Extra Expenses

While the general type of the lease you consider should give you a general idea of what expenses you directly pay, the rules vary from landlord to landlord and from building to building. One thing to watch out for is when the owner transfers capital expenses to you.

If you're under a triple net lease, it's reasonable for you to be expected to pay your share of the building's operating costs, even if you might not directly benefit from a specific expense.

 

However, when it comes to the costs of owning a building, there are gray zones where owners can transfer expenses to you. one example is making you pay a pro rata share of deductibles from major insurance claims. If your window gets broken and it's covered by insurance, an owner would be within his rights to have you pay the deductible. If a building burns or falls down, though, that's ultimately the owner's problem and responsibility.

This same principle applies to sizable capital expenditures. Your space needs to be cool, so it's reasonable to pay for an HVAC maintenance contract. Paying for completely new rooftop units when you're only going to be there for 3 more years? That's probably not reasonable.

 

Extra Space

In many buildings, owners charge you for more space than you actually occupy. If you're paying for your pro-rata share of hallways and amenity spaces like lobbies and restrooms, those charges are usually reasonable. However, owners have ways of padding measurements, too.

  • Some owners will charge you for any space that is under a cover -- even if it's an exterior walkway with an awning

  • Sometimes, you will pay for extra space in another building that is part of your park

  • Occasionally, an owner will make a measurement or math error. Usually, those errors break in the owner's direction.

Clearly understanding the measuring standard in place with your lease will get you halfway there. It's also a good idea to verify your space's measurements to make sure that you're only paying for what you are leasing.

 

Building Costs

Your building might impose additional costs beyond what is in your lease. One common example is parking. Just because you lease space doesn't mean that you're leasing a place for your employees and visitors to park. Other examples include fees for keys or amenity access. While these might not seem like major expenses, $50 or $300 here and there can quickly add up to real money.

 

Community Costs

Finally, when you lease space you commit to a range of costs. Space in a prestigious downtown high rise office building might carry higher rent than a suburban location. It might also carry higher parking bills. But those direct and indirect real estate expenses can pale next to the other costs. Employees might expect higher pay to compensate them for increased commuting costs. If you change cities, you could find yourself with different taxes or different workplace regulations. All of these costs -- which won't be a part of your leasing or purchase negotiations -- can significantly impact your total occupancy cost. The best way to prepare for them is to work with a local expert who knows all of the factors that can impact a given building or location

 

Here are a few older articles we know you'll like:

10 Commercial Office Site Selection Tips

What to Avoid in Commercial Real Estate

7 Ways to Save Money on Your Next Commercial Lease

 

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Topics: commercial leasing

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Don Catalano

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