Commercial Lease Administration: Uncovering the Hidden Costs
Commercial lease administration can be complex and confusing, with many hidden costs that can add up over time. It’s essential to thoroughly review lease agreements, consider all potential expenses, and communicate with landlords to identify costs that may arise.
Hidden costs in lease administration refer to additional expenses or charges that may not be immediately apparent or transparent. These costs can often go unnoticed, leading to unexpected financial burdens.
Fischer Solutions can help uncover costs and ensure that you are fully aware of all expenses associated with your commercial leases. In this blog, we will explore how to use our lease management software to maximize transparency with your commercial lease administration.
Commonly Overlooked Hidden Costs
The first step to uncovering hidden costs is to thoroughly understand the lease terms of your real estate contracts. This includes understanding your rent payment structure, operating expenses, property taxes, and other costs you are responsible for paying. Fischer Solutions can help you easily access and analyze your lease terms to identify any hidden costs that may be lurking.
Some common examples of hidden fees for your leased assets include:
Maintenance and Repairs
Tenants may be responsible for covering maintenance and repair costs for the office space or commercial property. These expenses can include repairs to:
- electrical systems
- heating or cooling systems
- general wear and tear
Subsequently, failure to account for these costs can result in unexpected financial obligations.
Some lease agreements require tenants to pay for their own utility usage, such as electricity, water, gas, or internet. Unfortunately, overlooking these costs and their impact can lead to budget shortfalls.
Landlords or property managers may require tenants to have specific insurance coverage. Liability insurance or property insurance is a good idea but may include annual fees that increase your rent amount. Failing to factor in the cost of these insurance policies can result in unexpected expenses.
Common Area Maintenance (CAM) Fees
In commercial leases, tenants may be responsible for contributing to the maintenance and upkeep of common areas shared by multiple tenants. These costs can include expenses for:
- parking lot maintenance
Ignoring CAM fees can lead to financial strain.
Pro Rata Share
Generally, tenants sharing common areas or services can be required to pay a pro rata share of the associated costs. This means that the expenses for maintenance, repairs, utilities, or insurance of shared spaces is divided among the tenants.
The pro rata share is calculated by determining the:
- ratio of each party’s ownership
- square footage
- any other agreed-upon factor
The even distribution of costs is determined by this ratio. Resulting in each party bearing a portion of the expenses that corresponds to their share of the property or benefit derived.
Lease Renewal or Termination Costs
When a lease term ends, there may be costs associated with renewing the lease or terminating it. These costs can include lease extension fees, legal fees for drafting new agreements, or penalties for early termination. Failing to consider these expenses can disrupt budget planning.
Managing lease agreements often involves administrative tasks, such as lease accounting, record-keeping, lease tracking, lease audits, or reporting. These activities can require time, effort, and potentially additional personnel or software solutions. Overlooking these administrative costs can lead to inefficiencies and increased overhead.
5 Quick Tips to Manage Hidden Costs with MP & VM
Fischer Solutions’ proprietary software was built for lease administration by lease administrators. Our commercial lease administration software, ManagePath and Visual Manager, aims to streamline and simplify your processes. By following the tips below, you can minimize the risk of hidden costs throughout the lease term.
- Track Expenses
It’s important to track all expenses associated with your lease, including rent payments, operating expenses, taxes and interest rates. ManagePath can help you track these expenses and provide detailed reports that highlight any discrepancies.
- Review Invoices
Regularly reviewing your invoices is critical to uncovering hidden costs. ManagePath can help automate this process by tracking all invoices related to your lease.
- Analyze Data
Visual Manager can help you analyze your lease data to identify any patterns or trends that may indicate hidden costs. For example, if your operating expenses are consistently higher than what you were initially quoted. This could be a sign of hidden costs.
- Monitor Lease Changes
Changes to your lease can also lead to hidden costs. ManagePath helps you monitor any changes to your lease, including renewals, expansions, and terminations. Setting up critical date triggers gives you peace of mind and ensures that all associated costs are accounted for.
- Leverage Automation
ManagePath can automate many processes associated with managing your lease, including lease abstraction, invoice processing, data analysis, and lease tracking. By leveraging automation, you can save time and reduce the risk of missing hidden costs.
In conclusion, commercial leases can be complex and have many hidden costs that can add up over time. Fischer Solutions ensures that you are fully aware of all expenses associated with your lease. Request a demo TODAY to see how you can use effectively manage your commercial lease and avoid any hidden costs.