2A — October 21 - November 17, 2022 — M id A tlantic Real Estate Journal
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M id A tlantic R eal E state J ournal Publisher, Conference Producer ..............Linda Christman AVP, Conference Producer ...........................Lea Christman Conference Producer .........................................Matt Wolpe Editor/Graphic Artist ......................................Karen Vachon Contributing Columnist ..Jason Aster, KBA Lease Services Mid Atlantic R eal E state J ournal ~ Published Monthly Periodicals postage paid at Hingham, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal 117 HMS Halsted Dr., Hingham, MA 02043 USPS #22-358 | Vol. 34, Issue 10 Subscription rates: 1 year $99.00, 2 years $148.50, 3 years $247.50 & $4.00 single issue - plus postage REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Phone: 781-740-2900 www.marej.com
Jason Aster
How to negotiate a commercial lease to limit the effects of inflation
he burden of inflation - ary increases, like the ones currently ham - pering the economy, should be shared fairly by both ten - ants and landlords. Yet such increases in operating costs are often passed on to ten - ants through additional rent provisions in a lease. If you’re negotiating a new commercial lease or a sig - nificant lease modification, you have an opportunity to protect your interests and negotiate a cap on how high costs can rise in a given year. Here’s how to approach these negotiations. Agree on what expenses can be controlled As part of your lease, your landlord will typically require you to pay for certain operat - ing expenses. Some of these expenses the landlord will con - sider noncontrollable, including taxes, insurance, and utilities. Others are theoretically in the landlord’s control, like what maintenance or security service T
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they hire, though there are nu - ances — if the selected team is unionized, for example, the landlord might argue the union rates are noncontrollable. Determine a cap for increases in controllable expenses Once you’ve reached an agreement on how to define controllable expenses, you can negotiate a cap on how high those expenses can rise each year. There are several ways to de - termine the specifics of how the cap calculation will work, some of which are more beneficial to you and some of which your landlord would prefer.
continued on page 16A Cumulative caps are less aggressive. A cap of 5% per year means your controllable expenses shouldn’t exceed 15% in the third year of your lease. You can also base caps on controllable expenses defined in your lease, or controllable expenses you paid previously. If you base caps on expenses de - fined in the lease — say, 105% of controllable expenses — your costs may be higher than what Landlords are most likely to prefer compounding caps which, as the name implies, compound quickly over time like an interest rate to the landlord’s benefit.
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