real estate investing

Lease Transaction Costs for Landlords

Although the golden rule of leasing commercial real estate is that the tenant essentially pays for everything, there are certain exceptions to that rule that impact the landlord’s bottom line… Exceptions that tenants and their agents would be wise to consider before putting together an offer.

A Real Life Example

A few years back while representing a landlord, an agent sent in an extremely aggressive offer to us. After reviewing the offer and crunching the numbers, we determined that the landlord would make absolutely no return on the transaction. As a result, the landlord refused to deal with the offer and sent a note to the agent stating apty, “We are a for profit business, not a charity”.

The reason for sharing this example is to highlight the fact that there are costs that impact a landlord’s bottom threshold in any lease, and to understand these is to ensure a winning offer or a losing one.

Landlord Obligations

Typically a landlord will be responsible for the following items:

  1. Provide washroom facilities in keeping with current building codes
  2. If office space, provide shell complete with T-Bar ceiling, lights and HVAC or ensure all of these items are clean and in good working order
  3. Perimeter walls drywalled, taped, sanded and primed
  4. Fix any structural issue(s) with the building — roof, windows, facade and parking lot
  5. Install demising wall(s) if required
  6. Ensure space has the appropriate electrical panel

The above list is in no means comprehensive. Landlord obligations and related costs can vary from landlord to landlord and can also be different if the space being leased is an industrial building versus an office building versus a retail space.

In Summary…

An experienced commercial real estate agent can help tenants and landlords alike in negotiating reasonable offers and in creating a profitable experience for all.

 


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