6 ways tenants overpay on leases
Many real estate tenants unknowingly overpay on their leases, a costly oversight that can erode business profitability. Hidden rebates, complex terms, and subtle clauses often escape notice until it is too late. As a tenant, understanding these potential pitfalls is crucial to safeguarding your financial health. Here are 6 common ways commercial tenants end up overpaying on their leases:
1. Operational Outgoing Fees
Landlords often charge tenants for common area maintenance expenses, including upkeep of shared spaces like lobbies and parking lots. However, without proper oversight, tenants may end up overpaying for these services or getting charged for services that, according to their lease, are the landlord’s responsibility. Vigilant review and negotiation of common area maintenance fees can help mitigate paying unnecessary expenses.
2. Missing Renewal Notice Deadlines
Failure to provide timely notice of lease renewal intentions can result in automatic lease extensions or terminations. To prevent unfavorable terms or disruptions in occupancy, implementing robust lease tracking systems and calendars can help prevent this oversight. A lease system can also enable the business to have more strategic lease renewal negotiations.
3. Not Negotiating Lease Terms
Lease agreements are negotiable documents, and failing to negotiate favorable terms can result in overpayment over the lease term. Proactive engagement in lease negotiations, including seeking concessions on rent, operating expenses, and renewal options, can help optimize lease terms and reduce costs.
4. Miscalculating Turnover
Rent Turnover rent calculations can be complex, leading to potential overpayments if not managed properly. A robust lease management system can verify these calculations to ensure accuracy. Such systems help monitor correct payments, anticipate accruals, and identify financial thresholds. This proactive approach prevents unexpected surprises at the end of the year.
5. CPI (Consumer Price Index) Increases
Landlords might propose CPI increases that do not align with actual contractual agreements. A strong lease management system addresses this by integrating ABS data, providing tenants with reliable information to cross-check against landlord proposals. This ensures any discrepancies are identified, so tenants only pay the rightful increase as stipulated in their contracts.
6. Missing Rent Rebate/Rent Free Entitlements
Tenants may sometimes negotiate rent rebates or abatements for specific periods within their lease term. However, they might inadvertently pay full rent invoices without realizing these entitlements, especially if the landlord has not applied the adjustments. A robust lease management system can effectively identify and alert tenants when such entitlements are due. This prevents overpayments and provides transparency, ensuring tenants know exactly what they are owed according to their contract.
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