We’ve discussed lease negotiations for office and industrial space multiple post, but have not gone into too much detail yet on why negotiations are so important! One of the benefits of negotiations is identifying and removing cost increase triggers in the lease that can be debilitating to a small or midsized business.
If the landlord decides to repair or replace any number of items that could be considered a capital improvement the tenants will pay additional rent or CAM charges in a “standard lease”. The impact of these triggers can further impacted by the type of financing the landlord decides to get to make these improvements.
Just recently a new client sought our expertise because their rent went up more than 25% in the past year due to the landlord putting in a new roof. After we had an opportunity to review their lease and CAM charges, and our analysis showed the tenant’s contribution to this roof was going to be more than $15,000 over the life of the lease. This was further exacerbated by the landlord financing this improvement for a short period of time forcing the tenant share the pain with larger payments over a shorter term. Fortunately, we were able to relocate them, which saved them over $70,000 over a 5 year period–now paying LESS than what they were paying for a smaller space in the same market. Not all stories end this way, however. Most tenants are not aware of a problem until they receive a notice that their rent is about to increase from the landlord. These provisions in the lease are “hidden in plain sight” and must be identified and included in any good lease analysis to put the tenant back in the driver’s seat.