Negotiations and renegotiations of office lease terms with auditing in the background
One can save a lot with precise provisions in the office space lease agreements and the correct settlement of maintenance fees.
When signing office space lease agreement or renegotiating the contract, it is worth analyzing, first of all, the costs associated with maintenance fees, which may constitute even over 30 per cent of all charges associated with leasing office space.
A reasonable step, especially in the case of contracts for larger space, is audit of operating costs, which can be outsourced to specialized consulting companies. Audit is a good solution, for example, to track the components of the annual balance of actual operating costs, paid in advance. Such verification should be guaranteed in the contract. This allows to check whether the charges for specific services match the average market rates.
It is also important to precisely specify in the contract space occupied by the tenant, as well as calculate its percentage share in the building and the share of common areas included in the leased office space.
- Tenants usually focus on the amount of rent and it is mainly the rental rates that are the subject of negotiations with landlords. Meanwhile, the method of calculating maintenance fees, which, in addition to the re-invoiced costs of utility consumption, constitute a very important part of office renting fees. Depending on the building, they constitute from 20 to over 30 per cent of total rental costs. Therefore, provisions of the contract regarding the method of calculating maintenance fees need to be specified. They should clarify exactly what can be accounted for and how - emphasizes Mateusz Strzelecki, Partner/Head of Regional Markets at Walter Herz.
It is about preparing a closed list of costs associated with the maintenance of the building that can be passed on to tenant and transparently including them in the contract. Therefore, as part of maintenance fees, the tenant will not be charged with, for example, the costs of improvements and additional investments in the facility, which should not be included in them. Operating costs are technical maintenance of the building, property management, security, reception, cleaning and greenery upkeep, garbage collection and other services, repair costs, insurance, as well as local taxes and fees.
- Before making decision to lease a particular office or during renegotiation of terms, it is also worth comparing the amount of operating costs, which vary depending on the standard, date of commissioning and location of individual buildings, in addition to the rental rates per meter. The contract should also ensure control over the increase in fees by introducing a limit on increases for items dependent on the property owner. Each contract should include provisions securing the tenant's interests in this respect - notes Mateusz Strzelecki.
Increasing market competitiveness forces building owners to optimize operating costs associated with renting office space. It also facilitates the use of energy-saving solutions in certified buildings. - Our analysis shows that buildings with certificates have lower operating costs compared to office buildings without them. On average by nearly 4.5 per cent, in the case of a BREEAM certificate and by about 9 per cent with LEED certification - informs Mateusz Strzelecki. - On the other hand, modern office buildings often fail to be more economical when it comes to energy consumption. Mandatory high standards regarding air and lighting mean that by providing adequate comfort at work they are also more energy-consuming – admits Mateusz Strzelecki.
Recent increases in utility prices mean that their consumption is an increasing burden for tenants. The growing operating costs are also affected by increases in the minimum wage and hourly rates. And this, in turn, translates into higher costs for services such as security, reception service, cleaning, waste disposal and work necessary to maintain office buildings. Changes in regulations regarding waste disposal affect the amount of fees for their collection. In turn, inflation increases taxes.
According to Walter Herz data, when it comes to maintenance fees, the highest rates in Warsaw are more than three times higher compared to the lowest, and the city average is about PLN 19/sq m/month. Prices range from PLN 11/sq m/month up to PLN 30/sq m/month. In every fourth office building in Warsaw, operating costs are not higher than PLN 17/sq m/month, and in nearly a quarter of office buildings they exceed PLN 21/sq m/month.
Strong diversity of the Warsaw office offer also reflects the large range of rental rates. The most expensive offices in Warsaw are almost four times more expensive than the cheapest offered space. According to Walter Herz’s report the average rent in the capital office buildings is EUR 15.5/sq m/month. The cheapest offices can be found for EUR 7/sq m/month, but buildings offering space below EUR 10/sq m/month constitute only 2 per cent of resources. In a quarter of office buildings in Warsaw, rent does not exceed EUR 12.5/sq m/month. Space in the most expensive office buildings costs almost EUR 27/sq m/month.