Understanding Commercial Lease Operating Expenses

Legal Compliance Resource
February 17, 2014 — 1,073 views  

Entering into a commercial lease is inevitable if you possess a business. There are many issues that need to be addressed. If you are thinking of taking a commercial property on lease, there are certain things that you must keep in mind.

  • Type of Lease

You must check which category the lease comes under, for example, whether it is a gross lease or a net lease. The tenant must be clear about the rental that he needs to pay the property owner.

  • What Kind Of Space Are You Planning To Lease?

A lease must display the demised premises showing the area clearly in the site plan along with the address.

  • What Comes Under Common Area Maintenance (CAM)

In the lease, the amount the tenant has to pay towards the common area expenses has to be clearly stated

  • Determination of Rental Rate

The rental rate that the tenant has to pay to the property owner should be stated distinctly in the lease for the entire term and if there is any annual increase, it should also be defined.

  • Who Has To Pay If The Tenant Needs To Modify The Building?

In most cases, the tenant has to make some changes to the demised premises, so, who has to pay for this purpose must also be mentioned before the finalization of the lease.

  • The Cost Of Repairs That Needs To Be Done

Many times dispute arises between the tenant and the property owner on who is responsible for any repairs that have to be done while the tenant occupies it. So you must make it clear with the landlord and have it mentioned in the lease before signing.

  • The Type Of Activity That You Can Conduct In Your Demised Premises

It is distinctly stated in the lease what you can and cannot do in the demised premises and you must strictly abide by the rules.

Operating expenses consists of all the expenses that the property owner incurs in relation to the demised property.  The scope of these expenses is however subject to a written agreement. Normally the expenses which comes under the category of operating expenses are:

  • All kinds of remuneration and compensation including wages and salaries of all the employees who are involved in the commercial activity
  • All major repairs with regard to the operation and maintenance of equipment used in the facility
  • Consulting and professional services related to the common area facility
  • Expenses regarding the use of stationary and other office supplies
  • Policing and supervising of the demised premises
  • Depreciation of all capital costs of all the items inside the demised premises like furniture, equipment, and machinery

The things which do not come under the category of operating expenses and for which the tenant do not have to bother are:

  • Return of insurance and damage recovered
  • Contributions by parties for sharing facilities

So, if you are thinking of starting a business, make sure to check all the details before taking any commercial space for lease.

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