STOP! Are You Paying Too Much in Rent?

Signing a new commercial property lease is an exciting yet nerve-wracking time for business owners. It is a very large commitment to make – after all, the lease is one of the most, if not the most, expensive line item on your balance sheet. With a good landlord it is intrinsic to continually work at keeping rents as low as possible in order to pass on the savings to a net lease tenant. Here are 4 ways that a good landlord will continue to keep rents as low as possible:

1.      Relationship With Lender.  The relationship that an owner has with his lender is an essential part of real estate ownership. A lender dictates what the interest rate will be for a particular property asset. If the borrower has a track record with the lender, if business has been done in the past and the loan covenants were fulfilled, if the reputation is there, then the borrower is more likely to negotiate a more favorable rate for his transactions. If goodwill is involved, all the better, because the tenant will become the beneficiary of the savings. 

2.      Reduction of Property Taxes. One of the largest component of operating expenses or additional rent paid by the tenant to a landlord on a net basis is property taxes. Although real estate tax is an unavoidable expense that is levied by the county to property owners, a good landlord is very attentive and watches it carefully.  According to the tax law, a property owner is allowed to appeal their taxes once every 3 years. A good landlord has an attorney in place that will file the paperwork with the county. It is a somewhat arduous process but the savings are big enough to warrant the process. In the end, a reputable property owner will pass the savings on to the tenant.

3.      Reduction of Property Contract Service Costs. Another component of additional rent on a triple net lease is the contract services. This is the cost to operate and maintain the facility, outside of utilities. A triple net lease provides for landscaping, snowplowing, and other contract services that get billed back to the tenants on their monthly rent bill. If a landlord can negotiate good pricing on contract services, the tenant will realize the savings. A good property owner will actively search for the best contractor to do the best work at the best price. The contractor is challenged to find ways to do the work  at better than market rates, and pass the savings along.

4.      Insurance. Property insurance also makes up some of the additional rent on a triple net lease. Although insurance is usually the smallest expense, a good landlord will give consideration to the associated fees. In order to keep the cost as low as possible, a landlord takes their book of properties to bid each year to ensure that they are guaranteed a fair price for the services that they as well as their lenders require. Also, a larger portfolio size results in better pricing simply due to economies of scale.

I know what you’re thinking – this is just an attempt at shameless self-promotion! But actually that is not the case. These are actual steps that a decent landlord will take to maintain low operating costs of their properties. The idea is to pass these savings on to the tenants to keep base rental rates low and the triple net operating expenses as minimal as possible.