Measure twice so you only pay once

Massage Tenants: Beware of Landlords with 13-Inch Rulers, MASSAGE Magazine

As “The Lease Coach,” representing massage clinic tenants with leasing matters since 1993, I have found some landlords are over-charging commercial and retail tenants for more square footage than the tenant actually has. Are you paying too much?

This is a common oversight in the commercial leasing field. Tenants frequently trust the reported square footage of their leased premise; however, whether this figure was accidently reported by the landlord or reported by a distant property owner who has never even seen the site, the amount of reported square footage can easily be wrong. The end result is massage clinic tenants needlessly pay an increased rent, based on their incorrect square footage. Isn’t it better to keep this money in your own pocket than pay it to your landlord?

To explain further, I was having dinner one evening with the COO of a large chain store organization. She shared that her company had recently moved into a new 4,400 square foot office. She went on to explain how spacious, beautiful and comfortable the office was. When I asked her if she ever verified the square footage, she said “no.” Why was this necessary? After all, this was the total area stated on her lease agreement. It took me several weeks to convince her to let me measure the space to determine if she was actually getting the 4,400 square feet the landlord was charging her for.

Finally, she agreed. When we completed measuring the premises, the area was 800 square feet short. That’s right; there was 800 square feet not accounted for. In the real estate industry, we refer to this as “phantom space,” where the tenant is paying more than is required. And in this case, this COO was paying more than $50,000 more than she needed to for space she didn’t have. We approached the landlord and corrected the problem-–both for the past and future. The tenant was reimbursed for her previous overpayments and continued to pay an adjusted rate.

The cost of phantom space can grow to be quite large as rental rates and Common Area Maintenance (CAM) charges increase over time. As an example, we found one previous client had a discrepancy of only 27 square feet. While this doesn’t sound like much, this specific unit was located in a prime downtown shopping mall with high rent. When this came to our attention, it was seven years into the tenant’s lease term and the landlord had collected $20,000 more than was rightfully due. Again, this came to a satisfactory conclusion with the tenant being reimbursed.

Yet another issue for massage clinic tenants to consider is how phantom space can repeatedly affect them. Understand that every tenant pays two rents: the base rent (which is negotiable) as well as the CAM charges. CAM costs cover charges on property upkeep, which benefits all tenants (including trash removal, property taxes and building maintenance) and are charged proportionately. Therefore, if a massage clinic tenant occupies 1,800 square feet, then he/she is responsible for the CAM charges on that area as well. If that tenant has been wrongfully paying for phantom space, he/she will also wrongfully pay too much for CAM charges.

Such square footage discrepancies are common for business owners, specifically, those leasing retail and office space. In my experience, many discrepancies are negligent, not necessarily fraudulent. This is a small consolation, as the tenant remains overcharged. When the landlord is receiving rent on 107 percent of a building, it stands to reason that the landlord should have questioned how he/she could get more than 100 percent of rent from that building.

It’s never too soon or too late to have your space professionally measured. Nearly all lease agreements will state what measurement standard the landlord has used to determine the area of your premise. Just as there are several similar, yet slightly different, recipes for a German chocolate cake, there are several different industry standards for measuring commercial space, but never with a 13-inch ruler.

If you have been taking the landlord’s word for the area measurement of your business premise, you may be overpaying substantially on one or more of your practice locations. You may be presented with a “measurement certification,” but don’t be fooled. Many of the locations where we have found discrepancies were “verified” as accurate, but, in fact, were measured incorrectly. Sometimes, the discrepancies are only 30 to 40 square feet; however, they can also be hundreds of square feet off, especially if the leased space is significant in size.

As you can see, phantom space is a simple concept and can be simply avoided. No one can ascertain the exact size of an area by naked eye alone, nor should a tenant always trust what is stated in his/her lease agreement. Space measurement can provide peace of mind and can save you thousands of dollars. As a massage tenant, isn’t this worth looking into?

Dale Willerton, MASSAGE MagazineDale Willerton, founder of The Lease Coach, is a certified lease consultant who works exclusively for tenants. Willerton is a professional speaker and author of Negotiate Your Commercial Lease. For consulting inquiries, call Dale at (800) 738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.

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