Office Space Tenants Often Pay More Than Just Rent

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Office SpaceWhen business owners lease commercial office space, there is often more to consider in the way of expenses than just rent. One would like to think that a rent payment each month or year would cover all of the tenant’s costs, but this is usually not the case. Most office space tenants will have to pay an additional rent, such as operating expenses, under the lease terms. Here are some things which all commercial office space tenants must keep in mind when signing a new office space lease.

Business Owners Are Responsible for Rent Plus Operating Expenses

In addition to paying the set rent for the office space, commercial tenants will also pay operating expenses. These are items which the landlord must pay out in order to keep the building running. Some of these costs may include taxes, insurance, utilities, common area maintenance and more. Since these can be quite costly, it only makes sense to have the tenant share in some of the financial responsibility for operating features which they make use of as well.

The Costs Will Be Stated in the Lease

These operating costs may be few or many in number, depending on the individual commercial office, landlord, location and added features of the building itself. In order to have the right knowledge regarding what the tenant is responsible for and how much these items may cost on a monthly or annual basis, the operating expenses must be listed in the lease. The lease must be very detailed regarding what the tenant is required to pay, what the landlord will pay and how and when these payments are due.

Operating Expenses May Fluctuate Throughout the Lease Term

It would be nice if there were concrete numbers with regard to operating expenses, however, many times these operating expenses will fluctuate. In fact, most operating expenses will vary in amount but there is usually an average number for which the tenant can calculate approximately how much they will be paying in addition to the base rental payment. For most office space tenants, they will have to pay a portion of the operating expenses based on the amount of tenants in the office building, if more than a single tenant setting, and what the landlord requests in the lease. Although the portion of the operating expenses which the tenant needs to pay will be a set percentage, the cost of the operating expenses will still fluctuate.

The Best Way to Understand Operating Expenses Is With a Tenant Representative’s Help

Operating expenses can be a bit difficult to understand, especially if one is new to the commercial office space leasing arrangement. In order to have a good grasp as to what these operating expenses are and how much you will need to pay, having a tenant representative by your side during negotiations, lease signing and beyond will help. The tenant representative will thoroughly examine the operating expense clause and provide you with detailed information on what you will need to pay in addition to your commercial office space rent.

Assignment & Subletting Clauses Are Necessary in Office Space Leasing

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Office SpaceThe steps one must take to lease commercial office space are plentiful in number. Once you find the perfect office space to lease, you then have to delve into the lease terms and negotiations to ensure that the arrangement is beneficial to you, the tenant. The commercial lease has many terms to read through and there are certain clauses which must be included in order to properly protect you as a tenant. Two clauses in particular which are a must when it comes to lease inclusion include the assignment clause and subletting clause.

When you enter into a lease, you never know what the future may bring. Most business owners would like to believe that they will be in the leased premises to the end of the lease term but this is not always the case. Instances may arise where exiting the commercial office space ahead of the lease term expiration is a necessity. This is where assignment and sublease clauses will come in handy.

Understanding Assignment and Sublease Clauses

With both of these clauses, the current tenant may have another tenant move into their position under the current lease. With an assignment, the tenant will assign the remainder of their lease term to another tenant. From that point forward, the initial tenant is no longer involved with the lease agreement. As for a sublease situation, the initial tenant will have a new tenant take their place in the lease but the initial tenant will still be responsible for any payments which the landlord does not receive from the subletting party. In general terms, an assignment clause is more favorable to a tenant than a subletting clause as it allows the tenant to be done with the lease once and for all as soon as the new tenant enters the picture.

How the Inclusion of These Clauses Will Safeguard the Tenant

Both of these clauses will safeguard the tenant by providing them with a way out of the lease agreement, in some form, should they need to move out for any reason. No business owner expects that they will have to leave prior to the lease term but there are certain instances which may occur that make it necessary to assign or sublet the remainder of the lease to another party. When the clauses are included within the lease, this provides an option for the tenant, if it is needed.

Landlord May Insert Various Requirements in the Assignment and Sublease Clauses

There may be certain specifications included within these clauses to help protect the landlord’s financial security should an assignment or sublease take place. The landlord may require that the new tenant is financially secure and will be able to pay rent when due. There may also be some added fees that the current tenant must pay to the landlord in order to ascertain the financial stability of the new tenant, such as fees for credit checks, etc. All of these factors can be discussed during lease negotiations to ensure that both parties are safeguarded in the arrangement.

Always review your lease prior to signing it and make sure that an assignment and/or sublease clause is present and will benefit you as the tenant.

Steps For Using Financial Analysis Results In Negotiations

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There are many ways to negotiate when it comes to commercial office space leases. Financial analysis is one tool which will help in your negotiations with current or prospective landlords. The financial analysis is the process by which you consider all of the costs associated with the lease and then use a financial program to come up with an end figure detailing how much the lease will truly cost you as a commercial tenant. It is these figures which will help you in the negotiation phase of commercial office space leasing.

Why You Need Financial Analysis for Negotiations

Negotiations for commercial real estate leasing are time-consuming and involved in nature. You are not simply renting a home or an apartment, you are securing an office space lease which often carries with it a lengthy lease term. There is plenty to discuss during commercial leasing negotiations and large amounts of money at stake. Therefore, you want to be sure that the negotiations work well in your favor, the tenant. Financial analysis figures will help to show the landlord what you will be paying, outside of simply the base rental payments.

There are many other costs to consider with commercial office space leasing and you want to bring such costs to the attention of the landlord. This will also be a beneficial path to pursue, since you want to determine what your landlord will pay for and what you will be responsible for paying on your end of the tenancy. A financial analysis will lay it all out on the table and ensure that no stones are unturned during the leasing negotiation process.

Steps for Using Financial Analysis Figures During Negotiations

When a landlord is figuring out how much to charge a tenant for rent, they look at the effective rental rate. This rate takes into consideration factors such as market rental rates seen in comparable buildings, building operating costs and total transaction costs. With these three encompassing factors in mind, the landlord comes up with the rental rate. How do tenants go about reducing the rental rate asked for at negotiations? By completing a financial analysis of their own. By doing so, the tenant can show that certain aspects should be less, or more, in cost to get the negotiations to favor their side and, ultimately, result in a lesser amount on the overall rental rate.

To have your points duly noted, use a proper financial analysis program to come up with the figures. This will hold the most weight when you are in the negotiation phase with your landlord as you have concrete figures to show for your point of view. Also, have a tenant representative along with you for the negotiations. It’s important to be properly represented so that you are not going it alone in negotiations with the landlord. Lastly, be reasonable with your requests, especially if the office space is a highly coveted one and there is a bit of competition as to other prospective tenants wanting the same location as you. The landlord will be less likely to be flexible if there is another business owner out there who will pay the asking price for the office space lease.

Financial analysis is extremely important in commercial office space lease negotiations and you want to make sure you sit down at the negotiation table with financial analysis paperwork in hand and a tenant representative by your side.

How Financial Analysis Plays a Part in Office Lease Transactions

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chicago office space listingsCommercial office space leasing consideration is a bit more in-depth than renting a residential property, for example. When leasing a home, apartment or condo, you know how much the rent costs and whether or not you will be able to afford it. For commercial office space leasing, the decision-making process is a bit more time consuming. In order to ensure that you are renewing your lease at the right location at the right cost or deciding to move your office space to a new locale to save money, you want to complete a full financial analysis to make sure that the leasing decision you make is the right one.

What a Financial Analysis Accomplishes

A financial analysis is the answer to determining what your overall cost will be to lease a commercial office space. Far from simply considering annual lease amount, there are many other factors to review in order to ascertain that the lease is a financially responsible move for you and your company to make. In addition to looking at the base rental price, you must consider factors such as increases in operating expenses, caps on operating expenses, reduced rent periods, contributions by the landlord, parking fees and more. By looking into all of these added factors, you can make the proper determination as to whether renewing your lease or moving elsewhere is the right decision to make.

How to Perform a Complete Financial Analysis

When starting the financial analysis process, you’re going to want a little help with the calculations. Fortunately, there are programs for just this type of analysis. Some of the popular financial analysis help comes in the form of ProCalc, LeaseMatrix and more. By using these programs, you can get a correct number, as well as get the job done with ease. When performing a financial analysis, you’ll be considering the various features listed above, such as base rental payments, operating expenses and all other costs and considerations which will provide you with a final determination as to whether or not your leasing arrangement will be of benefit to you and your company.

What to Do with the Financial Analysis Results

When the tabulations are complete, the final step is knowing what to do with the results. You want to look at the bottom line and determine if this number will fit within your budget or not. It will be helpful in making the decision whether to stay and renew your commercial office space lease or lease an office at a new location.

If you have a tenant representative, your decision will be made much more easily. This advisor will go through the numbers with you and help you to decide which leasing option will benefit you the best. Making the right decision is a matter of going through the financial analysis, step-by-step, and figuring out whether it pays to stay in your current office space and renew your lease or move on to a new location which will be more cost-effective and better for your company overall.

Office Space: Make The Tenant Improvement Allowance Work For You

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Many office space leases will be a good fit for companies yet there may be some improvements which have to be done in order to make the premises a perfect fit for the tenant. For this reason, tenant improvement allowances are often included within the commercial office space lease. These allowances come in different forms. Two of the most common forms include a turn-key build-out and a fixed rate allowance.

Difference Between a Turn-Key Build-Out and Fixed Rate Allowance

With a turn-key build-out tenant improvement allowance, the landlord will pay all costs to get your leased premises situated the way that you want them to be. On the other hand, a fixed rate allowance is when the landlord will give you a set amount of funds and anything over that amount will need to be paid by you, out-of-pocket. Both provide tenant improvements for the company owner leasing the space, however, both are quite different in nature.

With the turn-key build-out, you will be ensured that the money is paid for your improvements, however, you may not have the last word regarding what is done, how it is completed and when it is completed by. The landlord will have more control over the work. With the fixed rate allowance, you will have more control over what improvements are made and when but you may find yourself facing some out-of-pocket costs in the end if the project costs more than what was allotted to you under the lease.

How to Benefit from the Tenant Allowance

In order to benefit most from the tenant allowance, consider what improvements you plan on making to the leased premises. If you only plan on completing simple repairs and construction, a turn-key build-out might work fine for you because you won’t need too much control over simple tenant improvements and you will be ensured that the landlord pays for everything which has to be done. If your tenant improvements are more voluminous in nature and you can figure out exactly how much money you need to get the job done and want to ensure that it’s done according to your specifications and schedule, a fixed rate allowance might be best.

Keep in mind that you may always negotiate when it comes to tenant improvement allowances. You can choose a hybrid form of the two options listed above to have the type of tenant improvement allowance which will work in your favor. You may ask the landlord to provide for a turn-key build-out allowance but request that you be able to choose a project manager to oversee the entire project and have this individual report to you. Should you prefer the fixed rate allowance, ask if the landlord would be willing to pay for any extra money needed during the process, which couldn’t be accounted for until the project was underway. Just be sure to have these terms listed in the lease, otherwise, they won’t be valid terms.

Your tenant representative will guide you in the tenant improvement allowance process and go through all of the details with you to ensure that you are making the right choice with regard to this lease term.