Archive for February, 2011

7 Things you need to know before you sign a lease for office space

2/7  Gross Leases means you pay no extra costs right?

It’s time to read abit of the detail in your Deed of Lease and in particular the Outgoings Schedule or Clause 3.

Gross leases became popular during the property market crash of the early 1990’s as a way of enticing new tenants particularly for office towers with ground leases (and therefore ground rent) and so it also became difficult to compare one net rental with another because operating expense rates could vary widely. Gross leases have remained the standard in Wellington particularly ever since with one or two larger landlords pushing back to net since that time.

The intention of a gross lease is to allow the tenant to control or know with some certainty  their occupancy costs over a defined term of their lease, usually 3 years and therefore the landlord must wear operating expense risk but it was never intended that that gross means utility charges used by the tenant. Therefore when you look at the Outgoings schedule, item 1 for Rates will usually be crossed out and item 2 for water, gas, electricity….utilities or services will usually be left. Where a tenancy is not separately metered for electricity as is often the case with smaller and part floor suites a tenant can expect to pay a ‘fair’ proportional share of the electricity account. But is ‘fair’ based on the proportion of their space relative to the floor or the whole building? Canny tenants will insist on some wording in their leases identifying that outgoings and utilities being ‘relating to the premises’ will means common area charges and costs cannot get recharged.

Landlords can’t usually control  escalating utilities charges: water rates and electricity are set largely by the providers and can be subject to massive (relative to CPI) increases. A professional property manager will however be able to justify their accounting and proportional share calculations to their tenants. Larger tenants will on occasion request to view the accounts and check that costs have been shared and calculated in accordance with their Deed of Lease. This surely is one way of gauging a transparent and  professional landlord!

February 07 2011 | Uncategorized | No Comments »