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It Pays to Audit Your Lease

Posted by Anne on June 30, 2022

When was the last time you sat down to review your lease?

The answer to that question for many office tenants is typically three years ago on average. Since the typical office lease term is five to seven years, many tenants don’t really need to. Besides, what can happen in three years? Believe it or not, a lot can happen!

As office specialists, we read many commercial leases annually on behalf of our clients and take an active role in the negotiation process once a lease draft is received for review. That means that aside from a commercial real estate attorney, we strongly understand how each lease mechanism should function.

For tenants considering a relocation versus a renewal, we can perform a lease audit relatively quickly and provide a summary of what areas can be improved upon based on current market terms.

It is important to pay attention to annual escalation charges in lease agreements. It is included in almost all commercial leases and allows landlords to increase the rent at a certain time of the year—probably annually. Most tenants are confused about it and don’t know what a reasonable escalation charge is? They just pay the bill.

The first thing to look for: is the lease fixed for the entire term, or are there provisions for escalation? If yes, then for how long, how much, and when. What are escalation provisions in lease renewals?

Missing critical dates in the life of a lease also happens. Does the lease have an auto-renewal clause? How much time do you need to notify the landlord to exercise your renewal or lease termination option?

Another issue that tenants may ignore is their responsibility to share taxes, utility costs, and facilities maintenance bills. How are these items incorporated into the lease? It is always a good idea to reach out to a real estate professional when dealing with such issues.

Hundreds of thousands of dollars are lost because the tenant either failed to renew the lease or missed the deadlines. The Lease Audit Advisory team at R.W. Holmes can help you review, analyze, and recommend your appropriate options.

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