The Hidden Costs in Your Commercial Lease (And How to Avoid Them)
- Barry Johnston
- Dec 3, 2024
- 3 min read
Updated: Feb 8
When signing a commercial lease, it’s easy to focus solely on the rent figure—but the true cost of your lease often lies in the fine print. Hidden expenses such as maintenance fees, outgoings, and ambiguous terms can significantly inflate your operational costs, catching tenants off guard.
At Tenant Advisory Services, we help clients uncover and manage these hidden costs to protect their bottom line. Here are the most common hidden costs in commercial leases and how you can avoid them.
Outgoings and Operational Expenses
Outgoings refer to additional costs tenants are required to pay, such as property taxes, insurance, and building maintenance. While these are standard in most leases, tenants often overlook the specifics of how these costs are calculated or allocated.
What to watch out for:
Ambiguity in how outgoings are apportioned between tenants.
Uncapped increases in expenses, such as utilities or repairs.
Charges for services you may not even use.
How to Avoid It:
Carefully review the outgoings clause in your lease. Request a breakdown of these costs from the landlord and negotiate a cap on annual increases. A tenant advisor can identify areas where you may be overpaying or absorbing unnecessary charges.
Common Area Maintenance (CAM) Fees
CAM fees cover the upkeep of shared spaces like lobbies, parking lots, and hallways. These fees are often lumped into operational costs, but they can vary widely and sometimes include unexpected items like landscaping or security.
What to Watch For:
Lack of transparency in what’s included in CAM fees.
Inconsistent or unpredictable fluctuations in these charges.
How to Avoid It:
Request a detailed list of CAM expenses upfront and clarify which costs you’re responsible for. Negotiate limits on these charges and include them in your lease terms to avoid surprises.
Rent Escalation Clauses
Most leases include rent escalation clauses, which allow landlords to increase rent annually. These increases may be tied to inflation, market conditions, or pre-agreed percentages, but they can significantly impact your long-term costs.
What to Watch For:
Escalation clauses tied to ambiguous “market rates.”
Excessive annual increases beyond the Consumer Price Index (CPI).
How to Avoid It:
Negotiate a cap on rent increases during the lease term. A tenant advisor can benchmark escalation rates against the market to ensure you’re paying a fair amount.
Make-Good Obligations
Make-good obligations require tenants to return the property to its original condition at the end of the lease. This can include costs for repainting, removing fit-outs, or repairing any wear and tear.
What to Watch For:
Vague terms about the condition in which the property must be returned.
High costs for restoring spaces you’ve invested in improving.
How to Avoid It:
Discuss make-good terms during lease negotiations and aim to limit your responsibilities. You can also negotiate for the landlord to cover these costs or share them if the improvements add value to the property.
Ambiguous Insurance Requirements
Many leases require tenants to take out specific types of insurance, such as public liability or property insurance. However, unclear terms can lead to tenants paying for coverage the landlord should provide.
What to Watch For:
Overlapping insurance requirements between tenant and landlord policies.
Hidden administrative fees tied to insurance obligations.
How to Avoid It:
Request clear definitions of what insurance you’re required to carry and ensure there’s no duplication with landlord-provided coverage. Consult an advisor to ensure compliance while avoiding unnecessary costs.
How Tenant Advisory Services Can Help
Understanding and managing the hidden costs in a commercial lease requires expertise and attention to detail. At Tenant Advisory Services, we specialise in identifying these expenses and negotiating terms that protect tenants from unnecessary financial strain.
Our services include:
Lease reviews to uncover hidden costs.
Negotiating caps or limitations on expenses.
Providing clarity on ambiguous terms to ensure transparency.
With over 35 years of experience, we’ve helped countless businesses avoid costly surprises and secure leases that align with their financial goals.
Take the First Step Toward Clarity
Don’t let hidden costs undermine your business. Contact Tenant Advisory Services today to schedule a consultation and ensure your lease terms are working in your favour.
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