Minneapolis Real Estate Attorney Advice: The Hidden Costs of Leasing Commercial Real Estate
As many business owners have discovered, leasing commercial property in Minneapolis is much more complicated than leasing your first apartment. Most seasoned entrepreneurs have a horror story or two about a crazy landlord or being nickel and dimed for maintenance they thought was included in their lease.
Understanding lease terms and knowing when and how to negotiate are incredibly important in getting a fair deal on your next commercial space. Here are a few of the hidden costs I’ve seen landlords sneak into leases and how you can negotiate around them.
1. NNN Leases
Many new tenants are lured in by the low price of the triple-net or NNN lease. As a Minneapolis real estate attorney, I always advise my clients to buyer beware. The NNN lease base rent is so low because it includes only the bare minimum: the roof over your head, property taxes, insurance, and common-area maintenance items (CAMS).
While your rent may be lower with a NNN lease, you’re on the hook for all other expenses, from monthly utilities and landscaping fees to capital costs such as your share of the $1 million parking lot paving project. Instead, negotiate a full-service lease that includes repairs, utilities, maintenance, and janitorial services. Or, opt for a modified gross lease that covers property taxes, insurance, CAMS, utilities, and janitorial services.
2. Unforeseen Rent Increases
That low base rent you’re excited about? It’s going to go up after your first year. Most commercial leases are for more than a year, and yours likely has a clause that allows your landlord to raise your base rent by 3 to 4 percent a year.
While rent increases are common, it’s always better to know about them—and budget for them—before you sign on the dotted line. Always ask about future rent increases before signing a commercial lease.
3. Discretionary Operating Costs
Extra fees for operating costs are common in commercial leases. What can be tricky about them is knowing how they’re calculated and what your landlord considers semi discretionary and totally discretionary.
Semi-discretionary operating costs include fees for in-house maintenance and repair professionals. Landlords get to decide how these fees are passed onto tenants. Some may charge a flat fee that’s the same for every tenant. Others may base the fee on square footage. Totally discretionary fees are even more unpredictable. Often, a dollar amount is not even included in the lease. This type of fee covers the landlord’s building management costs.
4. Capital Improvement Costs
Your new commercial space may look great on the outside. But what if its sprinkler system is outdated or its boiler needs to be replaced? Capital improvements are costly, and landlords pass these costs onto tenants. During negotiations, ask the landlord about any upcoming projects.
5. Forgoing Legal Advice
The best way to avoid paying too much in hidden fees in your commercial lease is to work with an experienced real estate attorney. Morphew Law can help you understand the terms of your lease and negotiate so the deal is fair to you and isn’t lining the landlord’s pockets.
For help negotiating and understanding your next commercial lease, Contact Jon Morphew and the Morphew Law Office, PLLC at 612-790-9189 today for a free consultation.