#3: THE UP-TO-20 HIDDEN COSTS IN OFFICE LEASING
"Fore-warned is fore-armed." - Anonymous
When most people sign a lease for office space, they believe that they are obligated to pay rent, and maybe one or two other "standard incidentals
that don't amount to much." Actually, there are potentially as many as 20 hidden
costs in office leases, any combination of which can add substantially to rent cost.
For instance, there is "building operating costs," a frequent additional element in leases. It allows the landlord to recover out-of-pocket
expenses as implied. The items to be included, however, should be stipulated in the
lease. Likewise, specific exclusions should be included. Signing a blanket clause without itemizing what to pay and what not to pay is tantamount to
providing a sink-hole for all kinds of expenses from which a tenant may
not benefit. "Building operating costs" should not be a profit center for the landlord.
Taxes a major area of concern
Real estate taxes and potential tax increases are included in, virtually, all leases. These should be itemized, as well, to exclude non-real estate
taxes, such as other landlord taxes that might include payroll taxes, corporate taxes, rental income, gross receipts taxes, etc. Landlords often
protest their tax assessments, and win reductions. A lease should specify
that if tax reductions occur that the tenant will share in these benefits.
Special assessments for sidewalks, sewers, merchant associations, to name a few, are additional items often passed on to tenants. If the tenant is
responsible, these items should be specified in the lease, and not lumped with "real estate taxes," which they are not.
The work-letter to prepare your space before you move in, alterations to your space once occupied, repairs beyond regular maintenance, normal
"wear-and-tear" on your office, subleasing and assignment of lease in the event, say, of an acquisition or merger, all are items that could
potentially be costly to tenants. Each should be addressed with specificity
in the original lease.
Address lease extension/renewal
Lease extension and/or renewal is an area that should be of considerable concern to any tenant. Few landlords are willing to lock in renewal rental
rates, as, indeed, the tenant may not. It is not unreasonable, however, to agree on a formula for establishing such rates. If not, a tenant could be
faced with serious problems or costly litigation later.
Simply stated, an office lease is a contract. As with any contract, it is almost impossible to predict or anticipate every potentiality that could
arise. One thing that is predictable is the unpredictability of events. Thus, disputes may well develop over the course of a lease. It is
important that this unpredictability be covered with a lease clause that stipulates
an affordable way to resolve disputes between tenant and landlord, and when. Litigation is costly and slow.
A specific formula for deciding disputes should be written into the lease, as well as a time frame for initiating resolution. No tenant should suffer
because he sought resolution after the deadline for such procedures.
Get your own independent advocate
The point is that it is a mistake to consider lease negotiations as routine. Leases can, and usually do, include costs and potential costs for tenants
in addition to rent. The landlord budgets in your rent an amount for brokerage commissions.
Since you're paying for it, you should see to it that at least some of this money
works for you, rather than going 100% to the landlord's broker whose
interests are the landlord's, not yours.
MalmoMemphis Real Estate, Inc., represents office tenants. When
we represent you there will never be any question whose interests are
paramount in negotiations. We handle no office listings. We represent no office
building owners,
no office landlords, no office sellers. We are
your expert, independent advocate.The
'Tenant's 10-Point Guide to Leasing Commercial Space' is copyrighted by
MalmoMemphis Real Estate, Inc., (MMRE) and may not be reproduced without
the expressed written consent of MMRE, and the inclusion of notice that
the material is 'Copyrighted by MalmoMemphis Real Estate, Inc.' |
