Leasing a Lemon

On June 1, 2010, in Overview, by Admin

In today’s market there is so much commercial space for lease, including space in excess of 20 years old.  Just like buying a used car, you have to watch out for lemons when renting commercial space.

A couple of years ago I managed a shopping center that was built in the 70’s, and purchased by a couple of slick out-of-state invest­ors.  This lemon had been neglected by its previous owner and was in desperate need of repairs from top to bottom.  The new owners had a plan to finance the repairs without having to pay anyone back!

PUTTING LIPSTICK ON THE PIG

If you were a new tenant to this shopping center or were renewing your existing lease, you got the privilege of signing their new and improved commercial lease.    It had expanded provisions for the tenants to pay the landlord, through CAM charges, thousands of dollars for repairs that were really gigantic deferred maintenance expenses and capital expenditures.

The investors put up their money to give the center a new face lift and a new look, (the lipstick) which helped them attract a new batch of tenants to share expenses and fill their vacancies.  Underneath the lipstick was this pig of a property with a completely dilapidated roof, antiquated electrical service, distressed asphalt parking lot, dead landscaping and a host of other high-dollar repair items.

THE SIGNING BONUS

In addition to the bloated expenses the new tenants were about to pay for, many soon found out that the landlord’s 30+ year old heating and air conditioning units they were paying to main­tain were constantly breaking down.  (No to worry because the landlord thought of almost everything).  When they signed their new lease, the tenant agreed to replace the unit if it wore out!  A signing bonus if you will.  I know of two tenants who paid for the landlord’s new heating and air conditioning units within six months of signing their lease at a cost of about $3,000 a piece.

Another tenant called me a year or so after I had left to tell me his CAM charges had gone from $0.30 per foot to almost $0.60 per foot.  For him, that was an increase of $7,900 a year!  And for most small business owners, this is a “business killer”.

New and existing tenants trusted the landlord’s leasing agent when they signed these leases.  You simply will not get practical, objective and insightful advice from the landlord’s agent about the hidden charges and liabilities in your commercial lease.

 

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