Operating Costs Under Office Leases
The starting point for determining your operating costs under an office lease is identifying what services the landlord provides, what services the tenant must get directly, and who bears the cost. The following are common costs for office space:
- Heating, ventilating, and air conditioning (commonly referred to as "HVAC")
- Cleaning and janitorial services
- Electricity
- Repairs
- Security
If the landlord is charging you separately for such services, try to negotiate a fixed fee or cap on the amount.
If the landlord pays for basic services but charges you for increases in the cost of rendering those services, ask how the landlord is calculating that increase. For example, some landlords may figure the base year for calculating the starting point of costs as one in which the building is not fully occupied (heat not necessarily fully on, not all lights on, and so on). In this case, your company's moving in will naturally cause cost increases. Get the landlord to count the base-year costs as if the building were fully occupied and operational.
Landlords often try to get tenants to pay for increases in property taxes on the building. Watch out for this because if the property has been held for a long time before being sold, the value of the property may be significantly higher for property tax purposes when sold. The end result is a higher property tax that you may be stuck paying. Tell the landlord that having to pay for such an increase is not fair to you. To understand more about property tax, check out The Basics of Business Property Tax.
Landlords also try to throw in items as operating expenses that should really be capital expenses (and thus not properly chargeable to a tenant). So make sure that the definition of operating expenses that you may be liable for doesn't include capital improvements, financing charges, and other capital costs.
In addition, some landlords will charge extra for services supplied other than on "business days" or "after hours." So look at this clause carefully and try to limit charges for extra services to those that are truly extraordinary and not to be incurred on a regular basis. This can be of particular importance for a startup business, where workers often spend nights and weekends working.
Remember, the operating costs section of your base can mean big, unexpected costs, so carefully anticipate the problems! Be sure to read Negotiating an Office Lease for Your Business for helpful advice on this process.
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