Industry statistics show the overwhelming majority of tenants will overpay their landlord during the course of a property lease or rental. While no one wants to spend money they don’t have to, here are five ways commercial real estate tenants, franchisees, and other small businesses overpay rent.
Simply paying invoices from the landlord with an incorrect payment due amount
Do you ever verify that the amount on your invoice is correct? While you can fairly assume that the amounts due per the landlord is correct, can you really afford to count on it? If you only have one lease, an error might be easy to catch. When you have multiple leases, however, a small error can be a big deal. Consider this: a $200 error in one lease results in over $12,000 in extra payments over a five year period. The next time you receive an invoice, it is imperative that you double check the numbers before remitting payment.
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Annual escalations
If you have leases with annual increases, the amount of the increase per the landlord may not match the amount on the actual lease contract. Once again, if you only have one lease, this may be easy to catch. Recalculating the escalation for all your leases per the actual lease contracts, comparing those amounts to the landlord’s invoice, and finally paying the correct amount due before it is too late could be daunting if your lease portfolio is large. This is especially true because the lease escalations all happen at different times during the year.
Not realizing a monthly payment is not required
Often leases can have certain months of free rent. Most of the time the free rent is at the beginning of the lease but there are times when your month of free rent occurs in the middle of your lease. For instance, the lease could say the free rent is on the anniversary of the lease (the 12th, 24th, 36th months, etc.), or on some other random month. Random free rent periods are difficult to remember, regardless of the amount of leases you have.
Missing renewal notice deadlines
We’ve all been there – missing opportunities to renew the lease under favorable terms because we forget to notify the landlord within the notice period specified in the lease. Our rent spikes, and the scramble to budget for the new lease payment begins. It may not increase by much but as aforementioned, a “small” monthly increase of $200 over a typical five year lease results in $12,000 in additional payments.
Common area maintenance overpayments
CAM, the great real estate burial ground! Everyone has suspected at one point or another that they are being overcharged for CAM. Barring a full scale CAM audit, however, there is no way to verify that you are being charged the correct amount. Numerous unqualified expenses could be buried there. Large corporations avoid these issues by using enterprise software to manage their leases, but small businesses and franchisees had to rely on Excel spreadsheets – until now.
