Entering into a leasing agreement for any type of commercial real estate requires a lot of patience, due diligence and expertise. We know all too well the face of a first-timer. So excited to have found their perfect office space, and then when they see the lease for the first time…the look of panic sets in. Many pages long and intimidatingly filled with legal jargon, a typical lease for office space isn’t exactly easy to follow/comprehend.
So, when you read the title of this article you were probably thinking, “All clauses in an office space lease seem tricky” and this is a typical problem. We can’t stress enough how critical it is for anyone entering into a legally binding office space agreement to fully understand the components of said lease they are signing, i.e. what you are responsible for and, more importantly, what you pay for. This is the main reason you should always use a professional commercial real estate broker (and typically an attorney) to properly execute any type of lease agreement.
Dealing with countless Baton Rouge office space transactions, we have come to greatly respect one leasing clause in particular since it inevitably causes the most questions, misunderstandings and headaches for our clients. Keep reading to get insight into the trickiest clause found in an office space lease, and what you should do to protect yourself from monetary losses down the line.
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I Have to Pay for What? Understanding Operating Expenses
Operating expenses are hands down the most contested clause in an office space lease. Why? Because they are full of variables and are included in the rent (which it seems most people don’t realize).
When a tenant first enters into a leasing agreement for office space they assume the cost of rent (paying for the actual space used, i.e. price per SF) is their only monthly obligation in the lease. Two things happen with this: 1) there ends up being additional rent (operating expenses) that the tenant did not factor in and is responsible for, or 2) Operating costs are included in the price per square foot and the tenant didn’t realize.
Landlords love to throw in every charge they can get away with in the first draft of the lease, but it’s up to the tenant (or their hired commercial broker) to negotiate these terms.
Typical Operating Expenses Found in an Office Space Lease
Operating expenses typically fall under the below categories, but please note this is a very high-level list. There can, and will, be many more specific charges dependent upon the location, property type and other variables.
- Repairs & Maintenance
- Contract Services (Janitorial, Landscaping, Security, etc.)
- Real Estate Taxes
By comparison, here are items that should never be included as operating expenses in an office space lease agreement.
- Leasing Commissions
- Tenant Improvements
- Capital Improvements
Negotiating the Operating Expenses in an Office Lease
Our dedicated Advisors at SVN | Graham, Langlois & Legendre have a systematic approach negotiating operating expenses in an office space lease to ensure that our clients have the most optimal monetary outcome.
- Limit any and all operating costs to those that are appropriate.
- Verify how the operating costs are calculated and being charged.
- Determine if our clients operating cost (obligations) fit in with the obligations for the other tenants at the property.
If you are seeking, or have found, office space in Baton Rouge go ahead and give us call to make sure you aren’t paying a lot more in operating expenses than you should.
About Us – The team at SVN | Graham, Langlois & Legendre has over 99-years of combined experience helping clients across the Baton Rouge market get the most value out of their CRE investment. Contact one of our dedicated CRE professionals today with any questions you may have and start seeing the returns in a market that will make sure to give today, tomorrow and for the extended future. To reach us, you can call us at 225.367.1515 or you can send us a message on our website. You can also follow us on Twitter at @svngll or on Facebook.