May 24, 2017

Ways to Conduct a Commercial Lease Audit

By Don Catalano


Ways to Conduct a Commercial Lease Audit.jpg
Is the lease for your commercial office space really fair? If you read the document over carefully prior to signing, you may be inclined to say, "Yes, of course!" immediately; however, there are often clauses and languages in standard leases that put tenants at a disadvantage. A commercial lease audit is your chance to have your lease carefully analyzed to ensure that it is fair. Here are some of the considerations that go into one:


Analysis of the Space Being Leased

An audit should include a careful study of the defined space being rented. Are the square footage and floor plan correct? Is the load factor calculated in a transparent way? Does your company have express permission to use common areas? Are those areas properly defined in the lease? What is the condition of the space and is there a tenant improvement allowance? Who receives the proceeds if a portion of the tenant improvement allowance is not used?


Rent Analysis

What is the rent and how does it compare to other rates in the area? A tenant representative can give you baseline information about standard rental rates to get you started. How is the base year for operating expenses and taxes calculated? Are operating expenses spelled out clearly, so that you know exactly what you're expected to pay for? Are you expected to pay rent before any build-out or improvement begins?


Assignments and Sub-Leasing Analysis

Do you have the right to assign or sublease all or a portion of your space to another tenant? If so, what fees are you assessed for exercising this right? What is the approval process for getting permission to sublease or assign?


Extension and Expansion Options Analysis

Are you able to extend your lease? If so, when must you give notice and how will the rent be calculated for your extension? Do you have expansion options under the lease, such as a right of first offer or a right of first refusal? If there is space available, are you able to take just a portion of it or do you need to accept the entire space?


Surrender Obligations Analysis 

Are you able to terminate your lease early? If so, what is the payment and when must it be paid? When you vacate the property, will you be expected to pay for any changes to your space? Are you required to remove cabling when you vacate?


By considering these five points on your own, you can determine whether or not there are any questionable clauses or undefined terms in your lease that could pose a potential problem. Should you find areas of concern, the best course of action is to enlist the help of a professional auditor, typically an attorney who specializes in commercial lease audits. Keep in mind that commercial lease audits can be conducted before you sign a lease as well as after. Should an auditor find problems once your lease is signed, you can approach your landlord for a renegotiation.


Other great articles to check out:

Office Leasing Terms You Should Know

Tips to Avoid Signing the Wrong Office Lease

The Importance of the Commercial Lease Audit


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Don Catalano

Don Catalano