Sep 11, 2019

Hidden Costs You Should Know About in Your Commercial Lease

By Don Catalano


Hidden Costs You Should Know About in Your Commercial Lease
Rent and Common Area Maintenance (CAM) are often the biggest expenses that a company has, so naturally, you don't want to pay any more than you need to when it comes to the office or building that you lease. Unfortunately, commercial leases can be rife with hidden fees that unsuspecting tenants may end up overpaying for. These fees include:


1. Rent Increases

Rent escalations are a typical feature in leases, but they provide an opportunity for landlords to tack on unexpected costs. Increases that are tied to third-party indexes or operating expenses can lead to rents suddenly skyrocketing. Make sure that the rent escalation clause has a cap to limit how much your costs can increase each time.


2. Capital Improvements

Landlords typically pass the costs of regular maintenance and repairs to tenants through common area maintenance fees or rent increases. When landlords also include capital expenditure costs, this can lead to huge fees. Fight to have capital improvements that raise property values made the sole responsibility of your landlord.


3. Extra Square Footage and Load Factor

With a commercial lease, your monthly rent covers more than just the actual number of square feet that you occupy. Rents are based on rentable square footage rather than the usable square footage of the office. This figure includes a portion of all shared areas of an office building and is calculated using what's called a load factor. Unscrupulous landlords may fudge the numbers by including things like elevator shafts and external architectural features in the calculations for rentable square footage. To ensure that you're not paying hidden costs, ask for the equation used to calculate the load factor and a breakdown of what's included in the rentable square footage.


4. Administrative Fees

Some leases include administrative fees for property management. These may be included with the CAM calculations and not properly explained or disclosed to tenants. If your lease includes these fees, ask to have them removed.


5. Extra Tenant Improvement Costs

Often, landlords will provide a tenant improvement allowance to pay for renovations that are needed to get an office or building ready for a tenant. What many tenants don't realize is that the tenant improvement allowance may not be enough to cover all of the work that is necessary. Get estimates for your needed improvements before you head to the negotiating table to help ensure that you're not surprised with a bill at the end of the project.


These are just some of the fees and costs that can be buried in the language of a commercial lease. To avoid paying more than you should to occupy your office or building, enlist the help of a tenant rep broker during your commercial lease search. Not only can tenant reps help you find the best office or building for your needs, but they can also act as your advocate during the lease negotiation process. They can shine a light on those hidden fees and help you fight to have them capped or removed. Since the tenant rep broker's fees are paid by the landlord, hiring one won't increase the cost of your search.


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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Don Catalano

Don Catalano