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What You Don’tKnow -AboutYour Lease
Robert Lowery & Rick Cagnolatti
Office Market Analytics3Q –LeasingSnapshot
Tenant Advisory
NOVEMBER 2009
 
 What You Don’t Know ---About Your Lease ---CAN Hurt You
!
Houston businesses large and small are in asqueeze play. It’s no secret why –localinflation, lack of financing and economicuncertainty combined with the inability to fullypass along increased costs to customers.
W
ith the bottom lines under such universal attack, agrowing number of corporations are revisiting lease auditsas a tool to cut costs, since rent is typically the secondlargest operating expense after employee compensation.Landlords, by contrast, seem to have little problempassing along rising costs to tenants. Sometimes,however, they may abuse the privilege.Here are some examples in
The New York Times
of howsuccessful professional lease audits helped smaller businesses recoup wasted money:
•
 A publishing company discovered it was charged$100,000 for an installation of a new cooling tower, acapital item that cannot be expensed to a tenant, and anextra $28,000 per year in cleaning costs based on anunderreported base-year cost. The company receivedcredit against its rent.
•
 A textile company, subletting 12,000 square feet, foundthat the primary tenant was allocating disproportionateshare of its own escalations to the company, in which theyrecouped $175,000.Not all situations have an immediate, satisfactoryresolution. An outside audit revealed that Fifth ThirdBancorp was overcharged more than $800,000 in …..operating and maintenance expenses by the propertyowner. The landlord disputed the finding, and filed alawsuit.The bank’s experience is a reminder that commercialtenants must pay greater attention to the impact of leaseclauses on their rent bills, particularly initial or base year.Most companies cannot afford the time and energy toscour their rent bills for overcharges because it is hardenough to run their own business. A lease is acomplicated document that requires the erudition of industry experts that can catch seemingly minute mistakesthat multiply over the years into major losses.
Robert Lowery & Rick Cagnolatti
OFFICE
 
Notable
: Rental Rates increased 25% from 2006-2008. Vacancy currently on the rise.
Notable:
Greater Houston did not overbuild office buildings over the spanover the last decade. Unlike the 70’& 80’s.
Notable:
The third & fourth quarter of 2009 are likely to be the weakest in terms of leasing activity over the decade+.
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