In some ways, a commercial lease is much like a residential lease. You spend time looking for a property with the right amenities and location. Then, you negotiate with the landlord to secure a lease. Typically, you must complete a background check and verify your income to obtain a good lease.
All those things are issues that you may have experienced while applying for a residential lease in the past. If this is your first commercial lease, however, you may not be expecting the fees that you will have to pay. Educating yourself about how commercial leases differ from residential leases can be helpful.
Commercial leases generally last longer and contain expensive CAM fees
When you see the first price quoted for a commercial lease, it’s important to realize that this won’t be the amount you pay each month. Unless the advertised price states that it includes common area maintenance (CAM) fees, you can expect there to be a significant additional expense that you have to pay each month.
CAM fees cover the cost of maintaining parts of the property used by more than one tenant. For example, it is typical for businesses in a strip mall to pay CAM fees that cover snow removal and blacktop repair for the shared parking lot.
In office buildings, there may be a shared reception area or shared bathrooms. Each unit will have to pay a part of those fees. Typically, a landlord estimates those fees based on the prior year’s expenses and stretches them out over the course of 12 months in even payments.
No, you can’t just get out of paying for CAM fees
The real estate market is hot right now. Properties often sell or lease in shorter periods of time than usual. That is beneficial for the person who wants to lease the property to you, not you as the tenant. After all, the landlord will most likely have his or her choice of other tenants if you don’t agree to terms.
Knowing that it is a landlord’s market in New York makes it more important to review your fees carefully. Make sure that these fees reflect actual expenses and aren’t a way for the landlord to line his or her pockets. The good news is that while you cannot avoid paying your fair share of CAM fees, it may be possible for you to negotiate lower rates for those fees.
For example, if you are renting in a facility with a parking lot but will not have customers or clients come to your business, you will not use the parking lot nearly as much as a retail establishment may. This stipulation can give you some leeway for negotiations with your landlord as you finalize your lease.
Make sure you understand what you are signing
Far too many people approach their commercial leases with a flippant attitude. They may think that if something happens, they can break the lease and walk away. However, doing so could hurt your business, your credit and future employability.
Your best choice when you are considering a new commercial lease is to carefully review all documents and make sure you fully understand the consequences. After all, commercial leases, unlike residential leases, usually last for multiple years. Breaking a lease could mean ending up on the hook for tens of thousands of dollars in rent over the life of the lease.