When you are considering leasing an office warehouse space or any space for that matter, you want to go in to it with eyes wide open. The following will help you understand what to consider and hopefully help make your experience with leasing space a better one!
Students of history recall the stories of the landlord abuse that occurred in the late 1800’s/early 1900’s when tenant farming, mining towns and tenant exploitation were common. Fortunately, these situations have been largely extinguished in the US, but adversarial feelings between landlord and tenant remain. Is landlord abuse prevalent today when leasing space? Are they truly ogres? Or does the modern media sensationalize a few occurrences to feed this perception?
In our experience, most landlords are reasonable and fair. However, since they know the tools of the trade, often they get the upper hand in the lease agreement and structure contracts to their advantage. Many tenants, surprised by requirements of their lease after they move in, develop an “us vs. them” attitude.
Tenants can level the playing field by taking a few minutes to unravel the “legalese” of the lease agreement before signing. Often a 20+ page document, however, makes this a daunting task– unless you know what to look for. Here are 4 costs that some landlords quietly shift to tenants and what tenants can do to protect themselves:
- NNN Expenses:
Check the lease for the term “base rent.” If you find it, the lease you
are about to sign is a “triple-net lease” or NNN Lease. This type of lease requires the tenant
to pay for all of the expenses to run the property (such as property tax,
insurance, exterior painting, etc.). If any of these expenses increase,
it’s the tenant that pays more, not the landlord. If the building is painted or the
asphalt is replaced, once again, the tenant pays the bill. And the worst
part? The tenant doesn’t get to vote.
It’s not a HOA.
Tenant Protection: Sign a “gross lease” vs. a NNN lease. Gross leases require the landlord to pay the property operating expenses. If a gross lease is not available, negotiate limits to NNN expenses into your lease agreement.
Maintenance Costs: [Skip this
section if your lease says “Full Service Lease.” Full Service Leases are
typical of office buildings.]
Most leases require tenants to maintain everything inside of their
space at their own cost. Maintenance can include bath fixtures, light
fixtures, carpet, drywall, etc.
Tenant Protection: The easiest way to avoid these costs is to lease space at newer properties. Prior to move-in, request a walk-through with the property manager to document any defects in writing and with photos.
- Utility Costs:
Responsibility for utility costs varies from landlord to landlord. Ask
questions to determine who pays for what. The cost for
electricity/garbage/water may be included in the rent at one property but
not at another.
Tenant Protection: A good understanding of the utility costs is required to get a true “apples to apples” comparison of the cost to lease different spaces. It also prevents an unwelcome surprise after you move in. No one wants an unexpected $300/mo. utility bill!
- HVAC Costs:
Heating and cooling systems are big ticket items. Once again, treatment of
HVAC costs varies. Find out who is responsible for maintenance and major repairs/replacements.
Maintenance may be only a few hundred dollars per year, but a replacement
can cost over $5,000.
Tenant Protection: Negotiate a limit on contributions to HVAC repairs - $500 per year for example. Check replacement language – it isn’t uncommon for tenants to receive a $3,000 bill for a replacing a 15 year old system when they’ve only occupied the space for two years.
Again, most landlords are fair. If you are billed for an unexpected expense, contact your landlord. Compromise may be possible. Often, they aren’t the ogres they are reported to be.
Guest Post by: Barry Raber
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