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Lease Info |
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Electricity fees are determined in one of three ways: direct metering,
sub-metering or flat fee per square foot (typically $3.25/sf/yr). Base asking rents do
not include charges for electricity (unless referred to as "full service").
With direct metering, the tenant receives the electric bill from Con Edison and
pays it directly. With sub metering, the landlord pays the bill and adds
an administrative fee of 7–25%.
The
City Council recently approved a reduction in the CRT, increasing the
minimum taxable rent from $100,000 to $150,000. If annual rent is
above $150,000.00, the tax (from 1.2% to 6%) is due quarterly from the
tenant and a return must be filed. However, there is a tax credit
if annual rent is less than $190k, and in computing the amount of the
tax, there is a 35% reduction. If annual rent is less than
$75,000.00, no return is required. See:
http://home2.nyc.gov/html/dof/html/business/business_tax_rent.shtml.
The CRT will eventually be phased out.
All landlords
require proof of insurance (comprehensive general liability business
policy) which provides coverage in the event of property damage or
personal injury on the premises. The amount required can vary
between $1,000,000 and $3,000,000. While it's customary for the
landlord to be named as an additional insured on the policy, the landlord
should not be named as payee in the event of loss. Your
insurance broker should review those portions of the lease that deal with
property damage, personal injury, and condemnation rights.
The security deposit
protects the landlord against damage to the premises or the failure to
pay rent, and is usually 2 to 4 months' rent (depending upon the
financial condition of the tenant). In some cases, a standby
Letter of Credit can be used in lieu of a cash deposit. Banks
charge 2-10% annually for this service, depending on your relationship
with the bank.
With sole proprietorships or closely held corporations, a personal
guaranty is typically also required. There are two kinds of guaranties:
full and "good guy." With a "good guy" guarantee, the guarantor
remains liable only so long as the tenant remains in possession of the
space. Once the tenant leaves, the guarantor's liability terminates.
Annual increases in
operating expenses and employee wages (Porter's Wages)
are sometimes passed through to the tenant on a proportional basis.
Most landlords today, however, use
the Consumer Price Index or a fixed percentage (3% or 4%) to raise the
annual base rent to reflect increases in operating expenses. In
addition (but not part of the increased base rent), are real estate tax
increases over the base year (which runs from June 30 to July 1 each
year).
In New York City,
the loss factor varies between 15% to 40%. This means that a 5,000
rentable square foot (rsf) space actually contains 3,250 to 4,250 net
square feet. The difference is designed to account for common areas,
elevator shafts, etc. of the building (although some landlords arbitrarily
increase the rentable square footage to create the illusion of more space
at a lower rental). You should always measure the usable square feet
and compare it with what you're being charged.
The rule of thumb is
to allow 150--250rsf per person subject to the limits below (which assume
some offices, open space with work stations, and typical amenities):
(a) 20 people, allow at least 3400 rsf (180rsf/person).
(b) 30 people, allow at least 4800 rsf
(170rsf/person).
(c) 40 people, allow at least 5800 rsf
(160rsf/person).
(d) 50 people, allow at least 8000 rsf
(150rsf/person).
A $50/rsf build-out
provides a modest office installation with standard floor covering (often
refinished hardwood floors or commercial grade carpeting) and typical
amenities. Many start-ups and sales-oriented companies choose this
option for cost and business environment purposes (i.e., a modular layout
with open areas accentuated by working groups and stark offices to keep
the sales force on the street)-- which can be very effective if done in
the right hands. Alternatively, if a more conventional office
environment is called for, then begin your cost estimates at $80.00/rsf.
Professional offices are more expensive owing to larger offices, upgraded
materials, and more amenities. A New Building Installation is
typically negotiated into the base rent to include the cost of
improvements, which significantly reduces up-front tenant costs and
amortizes them over the lease term. If build-out costs are high but
the tenancy short, make sure there's a provision in the lease that allows
you to deduct a portion of the rent to offset the tenant improvements (if
you intend to pay those expenses yourself).
Free rent and other
concessions (e.g., build-out subsidies) are affected by supply and
demand. In the current market and especially in Midtown, good
space is plentiful and rents have decreased to average $41/sf/yr.
Downtown, rents have diminished significantly over the past two years.
Also expect 2-4 months free rent with a 5
year lease.
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