Top Tips for Negotiating Commercial Leases - #12 Get a New Base Year on Renewal

By
Commercial Real Estate Agent with REATA Commercial Realty, Inc. Texas 537349

Many companies renew their leases without engaging a professional tenant rep. Their logic is usually something like, "I know my landlord and trust him. We have been in the building for years so I don't see any reason to get a tenant rep involved and potentially get in the way of that good relationship. Besides, maybe the landlord will give me a better rental rate if he doesn't have to pay a commission."

That sounds logical, but in 27 years in the business I have never seen that actually work out to the tenant's advantage. Even in situations where the landlord says he will pay the commission to the tenant, the rent has always been over market. One recent client in Plano showed me the landlord's proposal which specifically said that they would pay her (the client) the tenant rep commission if she didn't hire one. The only problem was that the rental rate was $24.50. I just laughed when I saw the proposal. We ended signing a lease in the brand new building across the parking lot at $21.00 and that landlord was happy to pay me. The current landlord dropped its rate to $23.00 and was happy to pay me too, but it was too late.

Another friend renewed his lease in a different building just before meeting me and wanted to know if he got a good deal at $21.00. My answer, of course was, "it depends." After asking a few questions I found out that the landlord had not given him a new base year for operating expenses.

In the Dallas Fort Worth area including Plano, Frisco, Richardson, Addison, etc. most office leases include a base year for operating expenses. This means that the rental rate includes the common area operating expenses in the base year (usually the calendar year in which the lease starts). This covers expenses like janitorial, landscaping, maintenance, security, etc. The tenant pays for any increases in future years.

My friend had gotten a good rental rate at $21.00, but he had not gotten a new base year. He was on a 5-year-old base year and was paying more than $2.00 in addition to their rental rate. So what looked like a good deal at $21.00 was not a good deal at $23.00 plus.

This happens, of course, primarily on lease renewals. So when you renew your lease, be sure to ask for a new base year. If you can't get the landlord to give a new base year, then you must add the amount you are paying above your base year to the new rental rate and then use that number to compare to the other rates being quoted by other buildings.

 

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_________________________________________________________________________

Bob Gibbons

REATA Commercial Realty, Inc. | 1211 E. 15th Street, Plano, TX  75074

972-468-1946 p | 866-439-8015 f | 972-984-8580 m

bob@texastenantrep.com | www.TexasTenantRep.com

 

 

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Tags:
dallas
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frisco
office
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