In a recent post, I reminded all tenants to pay close attention to landlord communications about operating expenses. Today, I am going to share with you one very easy (and almost always successful) negotiating tip that will definitely save you money.
If your lease is Full Service Gross (typical for office buildings) or Modified Gross (office buildings and industrial properties), certain expenses are passed through to you only to the extent they increase over the cost incurred by the landlord in the first year or “Base Year”. The Base Year is usually defined as the calendar year in which your lease commences. No problem so far.
The lease goes on to say that you will be billed for increases in those expenses in subsequent years. That’s logical…but look out. Let’s say your lease commenced in July of 2015. Chances are that would make 2015 your base year and allow the landlord to start billing your share of operating expense increases on January 1, 2016. What was touted as a base “year” only really got you six months of protection.
How to avoid getting the shaft? Simply have your broker-advocate insist on lease language that says you will not be responsible for any pass through costs for the first 12 months of the lease term. That right there would likely save a class A office building tenant $.45 per square foot over that six month period. If your leased space is 10,000 square feet, that’s $4,500.00, thank you very much. (Call or email me for a quick explanation of the math.)
A penny saved in smart lease negotiations is a penny earned for your business.