How To Perform A Comparative Lease Analysis

lease agreementPicture this: your office space is currently located in an area with a poor business environment, so you want to rent a new office space to enable you to run business operations efficiently and effectively.

You engage a tenant rep to look out for your needs. A few days later, they return and show a list of spaces based on your requirements. They also provide a comparison of the properties on the list, advising on which is a better match for you based on cost-effectiveness and your needs.

What the tenant rep will provide you is both lease analysis and comparative lease analysis. First, they carry out a lease analysis to come up with options that match your needs. Then, they compare these options to tell you which is more cost-effective.

What Is Comparative Lease Analysis?

Comparative lease analysis is comparing two or more lease options to see which has better advantage in terms of cost.

Imagine this: two friends, Mr. A and Mr. B, rent office spaces for themselves at different rates. Mr. A’s is priced at $150,000 a year, while Mr. B’s is at $180,000 per year. Two years later, Mr. A has already spent $450,000, while Mr. B, $410,000. On the surface, Mr. A’s rent is cheaper. But, here’s the catch: he pays for maintenance and repair, as well as all outside structures of his rental space. On the other hand, Mr. B’s landlord handles everything concerning maintenance and repair, and doesn’t require his tenant to pay for any structure while occupying the property.

You can see that if Mr. A had carried out a comparative cost and lease analysis, he would’ve made a more informed rental decision and wouldn’t have spent as much as he does. This type of scenario is why lease analysis is essential.

It’s much more efficient to semi-automate the calculation when you have a number of options to consider, which you can do in Excel by learning more advanced formulas in a training course like Acuity Training.

Factors of a Comparative Lease Analysis

While the overall cost of occupying a property is the major reason a comparative lease analysis is carried out, other factors could also influence the price of leased properties. A few of these factors include:

  • Luxury Level

How luxurious the property is will play out in determining its price. So, carrying out a comparative lease analysis, you can’t compare a property that has gold fittings with another that has gold-coated fittings. Their classes are different.

  • Location

It’d be wrong to compare higher quality properties areas with lower-class ones. Yes, they may have the same layout, the same size, and the same level of luxury, but the perceived value of the location will always be the main determining factor as to the price of the property. So, consider the location when analyzing a lease for office space.

  • Age

A brand-new property can’t be the same as another property that’s 23 years old in the same location. The newer property will turn out to be more expensive than the older one. Therefore, the duration of a property is another influencing factor for lease analysis.

  • Income Generation Capacity

If you’re looking for a property for business purposes, you’d have to know how viable the location is for your kind of business. Understanding how much your lease will generate in positive net income is a must.

Steps And Approaches When Performing Lease Analysis

While a comparative lease analysis compares two or more lease options, a lease analysis is the individual analysis of properties—it’s the step taken before comparative analysis.

A lease analysis is a process of using several tools and procedures to gather and organize economic and financial data that educate you on what type of lease would be of more advantage for you (the lessee) and acceptable to the lessor (renter or the party that receives payment from you).

Here’s are a few of the items to consider in a lease analysis:

  • Look Out For Basic Details

Details like the physical address, the renter’s name, and contact information can be used to perform lease analysis. The state and date the lease was signed, the date indicating the beginning and end of your stay for that particular lease fee, options for lease renewal, and policies that guide rent increments can also help when you’re comparing lease options.

  • Be Sure Of The Extra Fees

Knowing what you have to pay for aside from the rental fee can serve as a tool for lease analysis. Fees like upfront security deposits or parking fees should be clearly understood. As should any cost pass-throughs. You don’t want to be in a situation where fees you didn’t care about will be demanded of you and eventually cause unnecessary hitches between you and the landlord of the property.

  • Repairs And Maintenance

In the long run, you may end up spending a lot on repairs and maintenance. So, be familiar with the requirements when comparing lease options. The lease will tell you aspects of the repair and maintenance the Landlord will handle. If the proposition isn’t fair enough for you, consider other lease options.

  • Look Out For The House Rules

Make sureto read the rules and regualtions in the lease agreements. Some office space rules can be far-reaching, outlandish, and even discriminatory. Some of these rules could be maximum occupancy, parking and storage, property alterations, quiet hours, and insurance requirements, among others. Understanding these rules will keep you out of unwanted troubles and help you analyze your lease options.

  • Quit Notice

The lease should explain the grounds on which you can be served a quit notice, as well as the duration of the notice. Otherwise, analyze your lease budget and consider other lease options.

  • Involve An Attorney

Sometimes, the letter A doesn’t mean the letter A, and you may be misled by the landlord to believe otherwise as stated in the lease. That being so, get an attorney to read through the lease document and explain everything to you. You should understand the legal implications of the lease you’re signing.

Conclusion

Both lease analysis and comparative lease analysis are crucial steps in the process of renting an office space and improving productivity. We have mentioned a few items here, but a professional tenant rep can help with a fuller list of items to consider. A tenant rep will not cost you anything. They will save money and ensure you avoid costly mistakes. As in residential real estate, they will represent you, but be compensated by sharing a commission with the Landlord’s’ agent or be paid directly by the Landlord. Contact us today if we can help you find a great tenant rep.