Top 3 Secrets a Landlord Wouldn't Want a Tenant to Know

CRE_Landlord_Secrets

Most landlords are extremely savvy business people. Many of them also have equally savvy real estate brokers and attorneys working with them. The net effect of this is that your landlord is able to hide secrets in leases and other operations. Many of these secrets are accepted business practice in the industry, but they still cost you money. Here are a few secrets landlords won’t share with a tenant:

"I Have Magical Measuring Tape"

You might be aware that you usually pay rent on a portion of the common area of your building through a load factor. However, the way that the load factor gets determined might surprise you. Building owners can creatively increase the size of the space that you pay for. For instance, if you occupy a building with exterior corridors that could be used on a regular basis, your landlord can include those corridors in your total square footage.

Your landlord can charge you for space in a ground-floor atrium if you occupy an upper floor. Landlords can even hit you for a third-floor conference room when you occupy floor six and have your own conference room. You may even end up paying for amenity space in other buildings in your development.

All of this happens because the Building Owners and Managers Association (BOMA) sets standards for commercial real estate building measurement that give landlords a great deal of flexibility. The way to protect yourself is to carefully review the fine print of a lease and have your own architect confirm the measurements.

"Of Course, You're All Getting the Same Deal"

In the age of Microsoft Word, boilerplate language in commercial real estate leases rarely exists. Just about every aspect of your lease's language can be changed. This means that terms that might seem to be set in stone are actually open for negotiation. Some of these small changes can add up to real money in certain instances. Here are a few small provisions to watch out for:

Uncapped CAM increases that don't protect you when the building sells.

Renewal options that reset to fair market value instead of continuing a current lease at the in-place rent with an increase.

CAMs that make you pay for a vacant space's share of the expenses.

"This Is Why I Offer Such Low Rent…"

The economic rule that "there ain't no such thing as a free lunch" applies to commercial real estate. If a building has rents that are lower than the market, it usually means that you're getting a special short-term deal that will get increased in the future, or the landlord is making it up in another way. Usually, low rents come back as high CAMs. When an owner plays a role in providing billable services to the building, he can squeeze a lot of cash out of it. For example, if you call your landlord to have a leaky faucet repaired in your space in a triple-net building, here's what could happen:

You pay for the manager that answers the call in your management fee reimbursement.

The owner employs the maintenance man and pays him $15 per hour while billing you $75 per hour.

He bills you for the trip charge.

The owner marks up the washer that his maintenance man buys.

You pay a CAM administration fee of 10 to 15% for having the expense billed back to you.

The best way to defend yourself from an unruly landlord is to read your lease carefully, negotiate intelligently and have an excellent tenant representative on your side. Optimize your CRE portfolio.