Most first-time tenants looking to lease office space tend to focus too much on how much rent they are going to have to pay each month, overlooking that there are other financial obligations they are going to incur.
When evaluating different leasing spaces, it is important to know how much space you are actually occupying, and it is important to consider some of the other financial obligations described in the typical commercial lease.
The Security Deposit: Most landlords insist that you pay the first month's rent upon signing of the lease and a security deposit, which is usually equivalent to one month's rent. Sometimes, the landlord will also ask for the last month's rent or, if the landlord is doing an extensive amount of tenant improvement work, the landlord may ask for even more.
Operating Expenses: Tenants are also responsible for a share of operating expenses of the building. Some leases are gross leases, in which the base rent includes the typical operating expenses, such as property taxes, insurance on the building, liability insurance, common area maintenance and the maintenance of heating, air conditioning and plumbing. In a net lease, all of those operating expenses would be charged to the tenant.
You have to review what is in the paragraph of the lease that describes what is included to make sure you are not charged for the replacement of capital items. You should also negotiate to have the right to audit the operating charges.
Capital Items: The replacement of capital items is another surprise charge most tenants don't think of when evaluating leases. If you have a three-year lease, and the roof is replaced in the second year of your lease, how much are you going to be charged? First, it makes sense to require that the cost of the capital item be amortized over the allowable life of the item. Then negotiate to minimize your obligation over the remaining term of your lease.
Unexpected Costs: Unexpected events can also add to your financial obligations. Very often, leases will provide that if there is a law passed requiring an improvement to an existing building, the tenant will be obligated to pay for the improvement if it is to the tenant's space or to share in the cost if it is to the building in general.
Repairs: Repairs are also another area of concern when you occupy space. You have to be sure who is going to be responsible for repairs.
If the air conditioning unit goes out in your space and it needs to be repaired, is that included in "maintenance" or is it a separate item requiring you to pay for replacement.
In some leases, you may be surprised to find that you are responsible for the installation of utility lines or services, including electrical, plumbing, heating, and Internet access.
Insurance: Most commercial leases require the tenant to provide extensive insurance coverage at the tenant's expense, and the landlord usually will not sign the lease until the proof of coverage has been provided.
This has been a brief overview of some of the financial obligations a tenant can incur in addition to rent. It is always helpful to have a good tenant broker guide you through the lease process.
Sterling can be reached at [email protected]
When evaluating different leasing spaces, it is important to know how much space you are actually occupying, and it is important to consider some of the other financial obligations described in the typical commercial lease.
The Security Deposit: Most landlords insist that you pay the first month's rent upon signing of the lease and a security deposit, which is usually equivalent to one month's rent. Sometimes, the landlord will also ask for the last month's rent or, if the landlord is doing an extensive amount of tenant improvement work, the landlord may ask for even more.
Operating Expenses: Tenants are also responsible for a share of operating expenses of the building. Some leases are gross leases, in which the base rent includes the typical operating expenses, such as property taxes, insurance on the building, liability insurance, common area maintenance and the maintenance of heating, air conditioning and plumbing. In a net lease, all of those operating expenses would be charged to the tenant.
You have to review what is in the paragraph of the lease that describes what is included to make sure you are not charged for the replacement of capital items. You should also negotiate to have the right to audit the operating charges.
Capital Items: The replacement of capital items is another surprise charge most tenants don't think of when evaluating leases. If you have a three-year lease, and the roof is replaced in the second year of your lease, how much are you going to be charged? First, it makes sense to require that the cost of the capital item be amortized over the allowable life of the item. Then negotiate to minimize your obligation over the remaining term of your lease.
Unexpected Costs: Unexpected events can also add to your financial obligations. Very often, leases will provide that if there is a law passed requiring an improvement to an existing building, the tenant will be obligated to pay for the improvement if it is to the tenant's space or to share in the cost if it is to the building in general.
Repairs: Repairs are also another area of concern when you occupy space. You have to be sure who is going to be responsible for repairs.
If the air conditioning unit goes out in your space and it needs to be repaired, is that included in "maintenance" or is it a separate item requiring you to pay for replacement.
In some leases, you may be surprised to find that you are responsible for the installation of utility lines or services, including electrical, plumbing, heating, and Internet access.
Insurance: Most commercial leases require the tenant to provide extensive insurance coverage at the tenant's expense, and the landlord usually will not sign the lease until the proof of coverage has been provided.
This has been a brief overview of some of the financial obligations a tenant can incur in addition to rent. It is always helpful to have a good tenant broker guide you through the lease process.
Sterling can be reached at [email protected]