Whether your space is medical, office, R&D, warehouse or some combination, it is probably your second-largest company expense behind your people.
There are many ways to save on space. Lowering your rental rate and the amount of space you lease are just the most obvious. Here are a few additional ways you may be able to save money on space:
1. Properly measure the existing space. You’re paying rent on a certain square footage – how do you know it’s accurate?
2. Professionally review your operating expense bills every year. Are you benchmarking expenses against the market and comparing those expenses to your lease to make sure you’re not being overcharged?
3. Comply with the new FASB rules. Mitigating long-term liabilities (which leases will soon be treated as) on your balance sheet will enable you to obtain more favorable financing for other parts of your business.
4. Cap or eliminate landlord fees. How much do you have to pay for them to review a sublease, oversee a build-out or manage the building?
5. Appeal your real estate tax bills or compel the landlord to do so. Your ability to do so depends on many factors, but the value of your building has probably dropped, and so should your tax bill.
6. Improve alteration rights. Will you have to pay to remove your data cabling when your lease is up? How about any other build-out that you’ve completed? When does the landlord have to tell you whether or not you will have to pay to restore the space? Are your trade fixtures and equipment protected?
7. Protect against legal fees with prevailing party provisions. If the landlord pursues you for any non-payment or other default, but the charges are illegitimate, are you still responsible for legal fees?
8. Protect against the landlord’s default. If the landlord defaults on its agreement with its lender(s), can the lender change the terms of your lease or terminate your lease? How much would those changes or a forced move cost you?
9. Get up to code. The governmental authority having jurisdiction over your building may require both your space and your building to be in full compliance with building code, including fire & life safety, energy, ADA and even LEED®, for you to get a permit to do minor work in your space. Is everything up to code and who pays for it to get up to code?
10. Save time. This is your most valuable asset. It makes you money when it’s devoted to operating your business; you lose money when you’re diverted away to other matters like the ones above.
Mike Norris is a vice president with Bethesda-based The Ezra Company, a commercial real estate firm. He can be a reached at [email protected].