Commercial Lease Agreements… They’re Full of Hidden Fees

When leasing office space or retail space there are two types of tenants.  Ones that are educated and ones that wind up paying way too much.  If you don’t want to overpay then stop reading and call us today.

We’ll help you find a great location or we can look over your LOI and lease agreement.

Don’t be stubborn, don’t go at this alone, and whatever you do don’t believe for a second that the landlord rep is going to help you with the lease.

Commercial Lease Agreements…  Let’s Find Those Hidden Fees

1. Business Evaluation

Evaluating your current business is pretty straightforward but you’d be surprised how many business owners skip this step.  You should be thinking about square footage needed, amenities to attract top talent and a convenient location for your employees.  Once you have a thorough list you should determine a ballpark budget and timeframe.

If you’re uncertain about near-term needs, consider a shorter lease.  You’ll wind up paying more per foot but you’ll have financial flexibility.

2. Property Research

Most business owners have no idea how to research property locations and that’s why they hire a tenant rep to do this for them.

If you feel like going at it alone then here’s a shortlist of things to look for.

  • Current tenant mix and neighboring businesses
  • Determine traffic count and foot traffic
  • Current parking and future parking needs
  • Talk to other local businesses to determine the current business environment.
  • Plumbing
  • Electrical
  • Signage

3. Comparable Market Lease Rates

Get an idea of market rents in the neighborhood you’re considering and compare them with the landlord’s asking rent.  You’ll need to speak with a commercial tenant rep to get up-to-date market lease rates. This information can help you negotiate a lower rent if the asking figure is high.

4. Discover Hidden Costs

Commercial lease agreements are full of hidden costs and whatever you do, don’t sign the agreement without a lawyer involved.  Most lease agreements have between 12 and 40 pages for you to review and the legal ease can be confusing if you don’t understand what you’re reading.

5. Minimize Rent Increases

The amount of rent you initially negotiate is not the same amount of rent you will pay later in the lease.  More than likely the landlord will want to see rent increases every year and you’ll need to negotiate a rental increase that works for your business and the property owner.

6. Option to extend

Make sure you read this part of the commercial lease carefully.  Keep an eye out for language that states “at or above” market rent because if market rents move lower you won’t be able to lock in those discounted rents because the commercial lease has the language “at or above”.

7. HVAC Responsibility

The responsibility for the HVAC system is a small detail that could end up costing you thousands. See if you can turn that responsibility over to the landlord. And failing that, you can get caps set on your per year out-of-pocket on the system.

8. Sublease Clause

A sublease clause is a must because it gives the tenant flexibility if they need to move for financial reasons or they might have outgrown the location.  With that being said make sure there’s no fee attached for assigning or subletting.

9. Term or Length of Lease

Most commercial property owners prefer a 3-year lease or longer.  If you’d like to take advantage of landlord concessions then you’ll need to consider longer-term leases.  The longer the term the higher the concessions will be.

10. Competitor Clause

You can ask for a competitor clause in the lease that requires the landlord to get your consent to rent space in the building to a competitor. This may be particularly important to retailers, insurance brokers, restaurants, and nail salons.

11. Lease Renewal Options

Lease renewals sound simple but they’re actually complex.  Be sure to understand when and how the lease will be renewed and at what rate.  Landlords love to add language that states the renewal must be at or above the current lease rate.

Options to extend are a great way to sign a shorter-term lease while maintaining your ability to stay at the location if it works out.

12. Co-Tenancy Clause

A co-tenancy clause is a clause that allows you to break your lease should a major tenant that drives business to you in the same multi-tenant building move.  If you’re a small tenant then you’ll want this clause in place.  Without you’re business will probably take a huge dive because that anchor store is no longer driving overflow traffic to your business and your visibility will suffer.

13. Legal Representation

It’s critical to involve a commercial lawyer in your lease negotiations.  Some businesses will try to save money by using a general or family lawyer.  They typically end up in an expensive lease contract with all sorts of gotchas.

14. Occupancy Date

Tell the landlord when you want to take physical possession. In some cases, the date you take physical possession may be different than the date, you will begin paying rent.

For example, ask the landlord for an occupancy date and rent start date of July 1, but ask for 1-3 months in free rent.  In this instance, the lease would begin on July 1 and the landlord could write off the free month’s rent. You’d be able to occupy the space for 12 months, and the lease would run for 12 months.

Negotiate a Commercial Lease Agreement Like a Professional

I routinely work with business owners that attempted to negotiate their own lease.  What I find is they want the lowest possible rent but fail to get concessions and find all of the hidden fees.  They’re leaving tens of thousands to hundreds of thousands of dollars on the table.

If you’re not using a commercial tenant rep you’re probably paying way too much. You need to know what to look for when reviewing your commercial lease agreement.

Whatever you do, don’t sign a commercial lease agreement without reading it.

Contact us to review your LOI or commercial lease agreement at no charge to you.