May 09, 2017

Hidden Occupancy Costs in Your Company's Leases

By Don Catalano


Hidden Occupancy Costs in Your Company's Leases

When you sign a lease, your company takes on a contract to pay rent and, potentially, CAM charges. You also agree to pay any number of hidden occupancy costs. If you don't know what they are, you could be in for a large and expensive surprise. Here are some of the hidden costs that are in your lease -- whether or not you know it.


Rent Increases

Usually, you can expect your rent to go up over the cost of your lease. While a 3 percent per year annual rent increase might not seem much, after six years, you can expect to pay 20 percent more for your space. The increase might be clearly stated, but the cumulative effect is one of the most significant hidden occupancy costs that you will pay.


The High Cost of Low Rents

If you receive special concessions from your landlord as an inducement to get you to move into your space, you might end up having to pay them back. Some types of rent abatements end up getting added back on to your lease at the end. Even if your concessions come with no strings attached, you could end up with a nasty surprise when you go to renew at fair market value and no discounts are available to soften the blow.


CAM Budgets and Increases

Common area maintenance charges are significant opportunities for landlords to create hidden occupancy costs. Creative budgeting can allow owners to recoup their own office and management costs -- especially if they manage their own properties. Some leases allow landlords to charge an administrative fee on CAMs which is, essentially, a charge of 10 or 15 percent of the CAMs tacked on for the work required to charge you for the CAMs.


Capital Expenditures

Some leases require you to pay your pro rata share of capital expenditures done to the building during your occupancy. While it might make sense to pay for repairs to your space, paying your share of the roof for a building can be an unexpected expense.


Your Load Factor

When you pay for 4,000 square feet of space, the one thing of which you can almost always be sure of is that you are not getting 4,000 square feet of space. In most buildings, your rentable square footage consists of your actual "usable" square footage plus your share of the hallways, bathrooms, amenity areas, and other common areas of the building. Load factors frequently tack 10 to 17 percent on to your space (more in atrium buildings!), usually invisibly.


Additional Building Costs

Even if you identify every occupancy cost in your year, you could find additional hidden occupancy costs in your building. Signage, parking and conference room rental costs may all come into plan, increasing your expenditures.


Beyond Hidden Occupancy Costs

If you are adding a new office or moving to a new city, you might even find costs that are not related at all to your corporate real estate. Different tax codes, licensure requirements, local wage rules, benefit costs and the like can all add significantly to your operational cost for a new location, especially in an unfamiliar area.


Here are a few other articles to check out:

Lease or Own Your Office Space?

What Factors into My Occupancy Costs?

Tips to Save Money on Your Commercial Lease


Subscribe to our blog for more great CRE tips!!
Subscribe Now


Office Space Calculator Use Now
10 Steps to Cutting  Your CRE Expenses Download
Improve EBITDA by Cutting Your RE Costs Download


Don Catalano

Don Catalano