Magazine article Editor & Publisher

Beware of These Dangerous Clauses in Your Property Lease

Magazine article Editor & Publisher

Beware of These Dangerous Clauses in Your Property Lease

Article excerpt

Renewing your lease for editorial office or printing plant? Beware -- do not let your landlord buffalo you into a bad deal.

Savvy lease negotiators say that newspaper publishers can get better deals on their commercial leases, but it takes knowledge about the most dangerous clauses that typically pop up in leases -- and about what can be done to avoid them.

"All leases are negotiable," according to David Kirk, director of the consulting division at Boston Financial Group. "The landlord will tolerate more than one might expect. So read your standard lease and make an effort to modify the terms."

That advice is especially relevant if your lease is up for renewal within the next 12 months. You should make an early start in reviewing what terms need to be addressed come renewal time. Moreover, the current economic climate has created a battlefield in your favor. Most cities are suffering the double whammy of a recession and the overbuilding of commercial space.

Even if your lease has more time to run, your landlord will very likely negotiate to keep you from fleeing the coop.

"If a tenant walks, the landlord has to go through the hassle of reletting the premises and suing the tenant," notes Gary Goldman, a Philadelphia attorney who has prepared reports on the subject for the American Bar Association.

In the current soft real estate market, there are more incentives for a tenant to wander. In many cases, other landlords are offering to take over an old lease to lure a tenant to their premises.

"When you renegotiate, don't just ask for lower rent," advises Goldman. "Agree to extend the lease." That gives you some leverage. The landlord benefits in a number of ways. He keeps a paying tenant, gets a longer lease, loses no downtime for his space, and pays no brokerage fee.

A fair property lease is vital to maintaining the competitive posture of your newspaper firm.

"Real estate expense has been escalating and putting a real squeeze on tenant profitability," says Bruce O. Carter, senior vice president for Charter Commercial Brokerage Co. of San Francisco.

More than just base monthly rent is involved. The typical newspaper lease is chock-full of land mines that can blow up and damage profitability.

"We tackle a host of lease issues that landlords never address unless approached," says Ronald H. Agababian, vice president and director of the tenant representation division at Peter Elliot & Co., a Boston brokerage. "The typical landlord just wants to know if a tenant is solvent and will pay the rent."

So what are these hot issues?

Brokers and attorneys point to the following as the ones that most often cost newspaper publishers big money:

1. Unfair escalation clauses.

"Outside of the base rental rate itself, the stickiest part of a lease is the escalation clause." warns Richard C. Alien, chairman of Alien Tenant Services, Phoenix, Ariz.

Escalation clauses call for the rent of a newspaper publisher to increase to the same extent that inflation causes operating expenses for running the building to increase. They are sometimes called "operating expense pass-through clauses."

As recently as a few years ago, landlords were in the practice of tying escalation clauses to the Consumer Price Index, a popular figure that reflects inflation. With the coming of the softer real estate market, this practice has been abandoned in favor of formulas that reflect the actual rises in operating expenses.

Unfortunately, such clauses are often so all-inclusive that they result in excess profits for the landlord.

"Many landlords view the clauses as profit centers while most tenants wrongly view them as methods used by landlords to stay even," says Goldman, who is currently negotiating the leases of over 300 sites nationwide for a large holding company in Philadelphia.

"If landlords view it as a profit center, then tenants have to negotiate based on that fact," he adds. …

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