Common Lease Pitfalls
One of the most common factors underestimated by tenants is time. The concept is basic. The closer the end of a lease, the less time a tenant has to make alternative arrangements, the more power a Landlord possesses in renewal negotiations. Some landlords play this power to their advantage. Regardless, this power should not be freely granted.
We recommend a minimum of 18 months of remaining lease term to begin the process. Office tenants greater than 10,000 square feet or any tenant with a special use can require more time, in some cases up to 48 months. That said, it is rarely too early to meet with a broker, review the existing lease, and start thinking about growth, contraction, flexibility and cost savings for an organization. A lack of time will always cost money, sometimes substantial.
Experienced tenants know that their financial responsibilities to the Landlord are typically not limited to the rental payment. Even a full service rental structure requires additional payments when costs increase at the Building over time. Some typically unexpected costs include wiring, triple net (NNN) expenses, insurance premiums, escalations, rental bumps, operating expense and real estate tax pass-throughs, tenant improvement allowance shortfalls, sublet administration fees, after-hours HVAC charges, moving expenses, architecture and engineering fees, construction administration fees, and a myriad of miscellaneous others that landlords may try to include in a lease agreement.
Know Your Lease – Missing Dates/Continuous & Diligent Lease Review
As alarming as it may seem, this misstep is common. Tenants, especially those with multiple leases, from big corporations to small independent businesses, have been guilty of missing critical dates in their leases. A tenant may have a renewal, expansion, contraction or termination right at the end of their 5th lease year, but when must that tenant notify the Landlord? 6 months in advance? 12 months? 15? A Landlord has no intention of sending a reminder. The Tenant’s forgetfulness is the Landlord’s gain.
Sometimes, over the course of a ten year lease, the executive responsible for the original lease negotiation/signing has moved on. In reality, the only time the lease is dusted off after signature is when there is a problem or within six months of the lease expiration. Missing a critical date due to a lack of diligent and continuous lease review can be a serious and costly mistake. A broker can provide tenants with timely updates and reminders or the task can be assigned to an in-house employee (just make sure the responsibility is attached to the job description and doesn’t end with the vacancy of the employee).