Commercial Leases

Real Estate Influence
January 8, 2013 — 798 views  
Become a Bronze Member for monthly eNewsletter, articles, and white papers.

Renting out your space for commercial purposes is not an easy job. The commercial leases differ from the regular contracts. Renting for commercial purposes involves a greater amount of responsibility as the terms and conditions are grossly different. For instance, the consumer protection laws that apply to commercial leases are much less compared to those for residential leases. Much detailed research needs to be done if you are planning to deal with commercial leases in real estate.

Operating Expenses in Commercial Lease

Before you sign any commercial lease contract for real estate, you have to check for the provisions in the lease regarding the operating expenses including what are the steps adopted in calculating operating expenses. Operating expense constitutes a major chunk of the payment that you need to cough up in addition to the base rent rate. It is proportional to the amount of area that you have leased. It is thus quoted per square foot per year. The operating expenses are taken to account for the maintenance work that the landlord has to perform for the rented space throughout the year.

The operating expenses are estimated and calculated at the beginning of the year. At the end of the year, the landlord does an actual check. In case, the tenant has paid extra amount, the additional amount is refunded. In case of less payment, the tenant is charged for it.

The operating expense varies from year to year as the actual maintenance jobs that need to be performed also vary. The real estate taxes, premium for property insurance, and charges for utilities including water, sewage system, maintenance jobs like painting the building, etc. are all under the purview of the operating expenses in a commercial lease.

Operating Cost Exclusions for Tenants

There are some costs that should not be included while calculating operating expenses. These include any cost that might have incurred during the installation while preparing the space for lease, any cost that the landlord has to pay for breach of any building rules and regulations, any kind of dues to any party, etc.

The rental for capital equipment like elevators should also not be included while calculating operating expenses. Any cost incurred by the landlord to repair defects resulting from poor designing of the property is excluded from the operating expenses. The cost resulting due to negligence on the part of the owner is also excluded from the operating expenses. Payments made to charitable or political entities are solely the responsibility of the landlord and it should not be passed on to the tenant.

Other miscellaneous expenditures like bookkeeping costs, management fees, withdrawal liabilities, additional costs for extending the existing building structure, etc. should not also be a part of the operating expenses. Consult a good attorney to draw up your list of exclusions while preparing the lease documents.

Once you are ready with a detailed lease document mentioning all the clauses and sub-clauses in great detail, you may get into an agreement and lease the space for commercial purpose. If you are the landlord, it is very essential to inform your tenant about the total breakdown of the rent. Such a transparency would lead to limited, if not zero, complications in future.

Real Estate Influence