Lease question!

[Natalie]

Hi everyone,


Okay, my first post disappeared. I'm not sure why. Apologies in
advance if it resurrects itself. I've been reading this forum for a
few weeks. It's incredibly informative. Nonetheless, I find myself in
a situation, and I can't find an exact answer. My partner and I are
about to commit to a commercial space in Brooklyn. Here's the offer:


2,500 sq ft

$3,800 with 2% increase (good for the area)

2 month abated rent

But, we have to pay broker fee ($3,800), so it's like we're getting
one month abated rent.

5-year lease (This seems good because the owner can't quickly jack up
the price until it's time for renewal.)



Here's the catch. The owner wants us to pay the property taxes, which
are $500 a month. Is this very unusual? We may be able to lower the
rent to compensate. The realtor also said that this rent will not go
up if the interior design makes property value go up. (I'm also
curious about occupancy tax. I read about it in this forum and wonder
if we will need to pay it.)

Lastly, he wants us to pay property insurance, but I think this just
means general liability, which we have to do any way.

Do you guys use lawyers when signing the lease? If so, any
recommendation from New York area?

Any suggestions/comments welcome!

Thanks,
Natalie and Cody

[OC Houston]

You are describing a triple net lease which requires the tenant to pay
other expenses in addition to rent including taxes, insurance and
common area maintenance. What I don't understand is why YOU are paying
the broker fee. Maybe this is standard in your area or the agent is
double dipping. I do believe in New York using a real estate attorney
is common. I personally wouldn't sign anything without a second or
third opinion. Especially, if you are questioning the transaction.

Toni Hogan

[Josh Aberson]

Yes it's normal as a NNN lease. As a buyer you shouldn't be paying the $3800 for your brokerage fees either, especially when this broker should be answering these questions for you as your representation as opposed to a coworking wiki.

Also, you don't need a 5 year lease to make sure your rate doesn't get raised, you can set an option after the first lease is up with a specific rental rate per sq ft within it to safeguard you from future market appreciation. That and a 5 year lease on a brand new business would make me a bit nervous.

Just my first thoughts as a coworking space owner and real estate broker.

Josh Aberson

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[Cody Sullivan]

Thanks for all of the help so far. I have a feeling we can make him pay the broker fee if we are subject to an NNN lease. I'm wondering if such a lease is bad, since it is a small property that doesn't share its space with anyone. Doesn't it make it more transparent? I suppose it makes taxes more difficult. I just spoke with a lawyer who made the whole process of signing a commercial lease more terrifying. For example, certificate of occupancy is very important since it is a garage-type space (the owner is a plumber)... and we may have to get an architect to approve the space for our purposes if the certificate does not qualify for our business code... which I don't even know. It's a bit absurd how much NYC requires to open a space.

-Cody

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[David Singer]

Natalie & Cody,

Are you the only tenant in the building? 

You're paying  $18.24 per square foot in base rent.  I don't know how much of the building you're renting -- but my question is whether that's market rate for rent without a base year calculation -- in other words -- lots of commercial leases factor in the first year's real estate taxes into the base rent -- with the tenant paying its pro rata share of increases over the base year.  That not being the case here-- you want to be sure that your $500 per month in real estate taxes is reflective of your proportionate share of the building.  If you're the only tenant -- you will be paying the full freight for taxes and insurance (that will include both property and liability insurance).  If you're not the only tenant -- you will likely be paying your pro rata share of the building property insurance.  In any event I would try to see if you can keep your rental rate and pay taxes over a base year.

Also -- if you're making improvements to the building -- that the landlord is not contributing to (note that in many commercial leases you get free rent and a tenant allowance for work) -- you may want to negotiate for a longer free rent period.

And why are  you paying the brokerage commission? That should be the  landlord's obligation.

Happy to try to answer other questions.

Regards,

David

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David A. Singer

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[JimO]

1. It is really unusual to have the tenant pay the commission.

2. Make sure you know all of the costs you will be responsible for paying and what those historical costs have been.

3.  http://www.theleasedoctor.com/  will do a thorough lease review for you at $395

Alos check our my website http://www.officefinder.com for more tipos and suggestions.

[OC Houston]

Cody, the landlord should be paying the broker fee regardless.

TH

> > coworking+...@googlegroups.com.

[David Singer]

Oh -- now that you have to basically "legaize" the use -- that does get complicated in NYC -- and you likely will need an architect to expedite your building permit and CO.  As a threshold question - you'll need to make sure that in fact you are even allowed to use this space as a coworking/general office use space for the "general public."    

Given that you are the only tenant in this space --  NNN  is appropriate.  Question: is the space you're renting separately assessed and taxed from the balance of the owner's lot?  If not -- you'll want to make sure that your $500/month is a fair allocation of the owner's real estate taxes.

You should quantify these costs and tack that on as an additional free-rent period; in addition -- regarding the taxes -- you (or your broker) should negotiate for a reduction in your first year's rent to compensate for the taxes.  

Just my additional 2 cents....

David

David

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David A. Singer

[Jerome Chang]

Look everyone:  please get a broker and a lease lawyer when signing office space.  They'll explain all of this and protect your end.

Yes, you'll need an architect and go thru that "legalization" process.  A space is not a space until it is deemed safe for occupancy, which means, yes, has to be zoned for office and yes, must be built correctly for plumbing, fire, electrical, etc.

While it may seem "absurd", it's actually the norm for safety reasons.

Jerome

______________
BLANKSPACES
"work FOR yourself, not BY yourself"

www.blankspaces.com
ph: 323.330.9505 | 5405 Wilshire Blvd (2 blocks west of La Brea) Los Angeles, CA 90036 

[Santiagor1@SoBeCoWorks]

Two Cents from Bethlehem, Pa

Definitely check with local Zoning office to may sure your use is approved otherwise you can end up signing a lease on a property that you may not be able to use while awaiting the proper approval process which can involve a review by Zoning Control Board and even Historical Review Board if the new business is considered a change of use.

I would look to engage a R/E lawyer to help w/ the process.

Santiago

www.sobecoworks.com

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[Cody Sullivan]

For some reason, my responses refuse to show up in this group. It's very frustrating. So, I'll keep it brief and just thank everyone for their input. If my responses start showing up, I'll post some updates or get my partner Natalie to post them. Thanks again!

Natalie & Cody,

David

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