Premise Lease Negotiations

Your Lease Is A Security Risk


Ian D. Toms


June 14, 2013

June 14, 2013

Do you think your landlord is going to call you up and tell you that you are over-paying rent?

Your lease can quietly drain away thousands of your dollars each year. It’s up to you to actively manage your lease affairs. At least 40 per cent of tenants following the steps indicated in this article will find a rent “leak”. The area of your premises determines how much rent you pay in two ways. First, you pay rent on a per square foot basis. Secondly, the calculation determining your share of additional rent is based on your premises area measurement. Therefore premises area has to be accurately measured, measured according to reasonable criterion, and the certified area applied to how payments are calculated. A 10 per cent error costs a 1,500 sf tenant, who is paying a gross rent of $40 per square foot, about $180,000 during a 30 year tenancy.

Defining what rent is payable on the certified area is equally important. Base or net rent is simple to manage, but the components and share calculation of additional rent is often vague and subject to landlord’s discretion, which a prudent tenant needs to manage.

a. During the offer to lease negotiation, the premises area measurement criterion must be clearly defined, reasonable and the final measurement capped. The share of additional rent must be reasonable, defined and fixed. Additional rent component inclusions and exclusions, and a mechanism to audit additional rent must be established.

b. On premises possession, the premises area needs to be certified by measurement on-site by a qualified professional.

c. At the beginning of the tenancy, all rental payments need to be adjusted according to this certified measurement. It amazes me to see long standing tenants pay rent on the original premises area estimate even though the premises area was certified as agreed!

d. During the new lease negotiation, the proposed lease must be reviewed to ensure that the terms and conditions describing rent components and area measurement – so carefully negotiated in the offer to lease – are transferred to the new lease. Otherwise what was the point of all of the effort during the offer negotiation?

e. Under an existing lease for an established tenancy:i. With respect to premises area measurement:

1. Check your lease documents to determine:

     a. how much space does your lease indicate you actuall have as leased space?b. how is the premises area supposed to be measured?c. was the indicated area ever certified?Clue number one is that if the premises area figure indicated in your lease ends in one or two zeros, that figure is very unlikely to be accurate.

 2. Check your area measurement by hiring a qualified space measurement consultant to certify your premises area.

 3. Check your area measurement against what you are actually paying for by comparing your rent payment calculations against your annual additional rent statement or rent cheque.

4. Always be on the lookout for the landlord trying to increase the rent by increasing the premises area measurement.

     a. At any time a landlord may try to quietly “sneak one past the goalie” by not saying anything and simply billing you for rent calculated on a larger area.b. Landlords attempt to introduce new premises area measurement at lease term renewal.

ii. With respect to additional rent:a. Check your lease to determine exactly which costs you agreed to pay for, which costs did you not agree to pay for, how your share of each cost is to be calculated, and whether administration or management fees apply to some or all costs.b. Review your annual additional rent statement, comparing both costs and calculations claimed by the landlord, to those indicated under your lease.c. Compare the additional rent costs indicated by your additional rent statement to determine if each cost is reasonable, and whether any costs are duplicated. Even though a cost category may be legitimate, the total cost may be away out of line.d. If you suspect an incorrect calculation, or that a cost ought not to be included, you need to refer the matter to a qualified professional rather than to go directly to your landlord.

Bottom line is, never assume your landlord is “out to get you”. Always assume that you need to actively look out for yourself. PA