Indexation of rent. As an alternative to a complex operating cost clause, some landlords index their rents. This way, owners can keep their books private. It also saves tenants from a costly and time-consuming review of expenses, which can lead to legitimate discrepancies. A doctor in Suffolk County, New York, has signed an eight-year lease for offices. Less than a year later, the building burned down. The landlord complained about another rent and won, although he was not forced to repair the building. New York law would have protected the doctor from this kind of thing, but the lease contained a clause that provides that the rent does not decrease and that his liability under the lease persists even if a victim destroys the building. Indeed, the doctor has signed his legal rights.6 The highlighting of these illegal clauses is intended to protect you and make your tenants happy.
Litigation can be expensive and no one wants to be held up in court for something that could easily be avoided with a clean, legal lease. To avoid this, we have compiled a list of 5 clauses that landlords have tried to use in the past that you cannot include in your rental agreement. But in the event of a merger, you may have no control. In the same way, your landlord can require that any subsidiary to which you transfer your lease has assets as strong as yours. But subsidiaries are rarely as well equipped as their parent companies. Such a clause seriously hinders your business flexibility, especially if your landlord requires you to remain liable in the first place after the lease assignment and offers little more protection to the landlord. Renting offices is often a big effort for a small business. But it can be unnecessarily expensive if you don`t understand the hidden costs and restrictions that are buried in many lease agreements.
Even with an exclusion, large capital expenditures – cleverly relabelled – can find their way into your operating bill if you`re not careful. For example, a lease may require you to pay for equipment rental. This is a common technique for converting investments into expenses that are passed on to the tenant. They should agree to pay for the rental of equipment only if they do not replace the capital goods that the owner would otherwise have to purchase. Tenants should be looking for such fees, given that the Tax Reform Act 1986 changed the depreciation rules of the tax law and made leasing equipment more attractive to owners than buying. An operating expense clause allows your landlord to cover the cost of normal expenses for the operation of a building. That should be all he does. The operating costs mentioned in your invoice should correspond directly to the services you will receive under the lease agreement and they should comply with an objective standard such as GAAP (generally accepted accounting principles), and not with the agreements specific to your landlord. Electricity. For many tenants, electricity is one of the most important operating expenses. Landlords who want to increase their income without paying a higher rent often use the electricity clause as a profit center and inflate the already considerable costs of this essential service. Don`t let your landlord`s profit unnecessarily increase your electricity bills.
As a rule, lease agreements provide that electricity is paid in one out of three ways: direct measure, sub-measure or closure of rent. Insist on a precise and limited definition of the articles to be included. Owners sometimes use the operating expense clause as a profit center. If you accept a catchall clause that many owners deem necessary, it can become a blank check. You may be charged fees that have little to do with operating a building. Ambiguity also increases the risk of litigation. Normal wear and tear. Your rental agreement should at least stipulate that you are not responsible for repairing normal wear and tear. Some landlords ask tenants to “restore” their leased land when they leave. You should not accept such an agreement.