Not everyone reads a commercial lease thoroughly before signing on the dotted line, but for Sara Jo Whitlock, director of lease administration at Cushman & Wakefield | Sage Partners, it is her duty to scrutinize every sentence of the document.
“Generally, what I try to do is make sure that I read a lease front to back,” she said. “Basically, I’m making sure that we’re operating to the lease exactly how it’s written.”
Not reading leases closely enough can be costly, she said, adding that property owners often focus too much on financial terms rather than operational clauses. Those clauses are important because they spell out whether the tenant or the owner is responsible for different costs.
Whitlock said it is important for owners to understand their goals for the property and the lease, whether they choose a full-service lease with a higher rent amount but with operating expenses, utilities, taxes and insurance included or a triple net lease, in which rent is lower but tenants are responsible for paying operating expenses, taxes and insurance.
“You can have leases that fit anywhere between on that spectrum depending on what your goals are as an owner,” she said.
Ambiguous language can leave owners and tenants wondering who will pay for heating, ventilation and air conditioning maintenance, roof repairs, and common area maintenance. Clear language about tenant responsibilities ensures owners can recover money spent on repairs to building systems and CAM expenses such as pressure washing, landscaping upgrades and parking lot repairs.
“Owners often overlook utilities,” Whitlock said. “Especially in older retail centers, if the tenants don’t have separate heaters, owners sometimes eat that cost out of convenience, but with work, you could pass that charge back to the tenant.”
It is also important to keep track of lease dates, since overlooking a renewal window or rate increase can cost owners a significant amount of money, she said.
She cautioned against relying too heavily on template leases. Every building is different, she said, and one-size-fits-all language is usually not sufficient to protect the interests of the lessor and lessee.
“Definitely work with a licensed attorney building that really good template that’s tailored to retail or to an office or to an industrial space,” she said. “That will save you half the battle.”
In addition to a real estate attorney, a top-notch lease administration team can also catch hitches before they lead to major issues.
“There’s a lot of things that we can do to support the owners,” Whitlock said. “Owners often come to us after dealing with kind of a set-it-and-forget-it mentality, and we like to be hands-on to catch those flags early.”
Some causes for concern might be a lack of personal guarantee or security; asking for too much up front, such as free rent, early termination agreements or an unusual amount in improvements; and one-sided exclusivity clauses that limit the owner’s ability to rent to other, similar businesses, she said.
She added that owners should plan for how tenants may grow or downsize as their needs change to ensure good tenants stay at the property for the long haul.
“The devil is in the details,” she said. “A little extra effort in lease negotiations and setting up your lease and really understanding what your goal is with the building with the tenant will save you so much time and hassle down the road.”
READ ALSO: McGraw Realtors Opens New Office in Hot Springs Village
