Commercial Lease Terms are Important

If most landlords are charging a $ 0.25 per square foot per month common area maintenance (CAM) fee and your landlord is charging $ 0.35 per square foot per month for similar space, that relatively "small" CAM charge difference would be $ 12,000 per year for a 10,000 square foot space or $ 6,000 per year for a 5,000 square foot space.  It's not peanuts; you need to know why your landlord thinks that because his expenses are higher, maybe because of building faults or overpaying for expenses, that you should be suffering because of those problems.

If you don't know what the market lease rate is and you pay $ 0.10 per square foot per month too much, again you are paying $ 5,000 to $ 10,000 per year more than you should for each year of the lease.

If you agree to an annual rental adjustment above that typically agreed to in the market, say you agree to pay a 5% bump each year while other landlords are demanding only 3%, the rent you pay will increase annually at an alarming rate and the rate increase will quickly push your rent payment well above the market rate.

When you combine paying too much rent, agreeing to atypically high CAM fees and you also alow atypically large rental increases, you can end up with a lease rate that is well above the market rate after only a few years.  Lock those bad terms in for 5 to 10 years and you will suffer a considerable loss for your mistakes.

In Las Vegas we still have a relatively soft office market with a near 20% vacancy rate, yet there are many landlords who suffered through massive vacancy rate reductions and forced rental reductions and some think that they see some light at the end of the tunnel.  Landlords thus want to be as "aggressive as possible" with regard to rental terms.

Smart tenants need to arm themselves with facts.  They need comparable market rental rate facts, CAM charge rate facts and rental rate increase facts.  They need to hire an appraiser or take the time to dig out the information themselves.  If you can negotiate good terms based on your facts you should lock them in for 3-5 years with an option or options.  Landlords want to get you in their space even if they have to provide you with a short term discount, they want to keep the terms relatively short and they hope to take advantage of any upward movement in rental rates.

If the office market recovers landlords know that tenants will have relatively few alternatives and they also know that most tenants don't want to incur the costs and time loss associated with moving.  Leasing is a lot like buying, your commitment is shorter, but tenants are likely to renew.

For existing and potential office tenants early 2014 is a time to take advantage of the many spaces that are still standing vacant.  Tenants or potential tenants should point to all of those vacant and unfinished buildings / spaces when you negotiate.  Don't accept terms that are not typical in the market and then you won't regret the decision that you made over the next few years.

It is easier in your lease renewal negotiations to try to keep good rental rates, CAM adjustments and rental rate adjustment provisions than it is to try to establish them.  You have to try to get it right when you do it the first time.

Glenn J. Rigdon, MA, MRICS, ASA is an experienced commercial real estate broker and real estate appraiser located in Henderson, Nevada.  Check out his commercial appraisal articles at or his profile on Linkedin at and his website at

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