Founders & Small BusinessFree
Commercial Lease Review and True Cost
The headline rent is 55% of what a seven-year lease actually costs, and a fifth of the total is set by the landlord each year.
River reads the lease and the exhibits behind it, then totals every dollar the document can require you to pay across the full term. The worked example is a seven-year lease on 4,200 rentable square feet quoted at $32.00. Adding the escalations, the operating expense pass-through, the build-out above the allowance and the restoration obligation brings the term to $1,720,211, which is $58.51 per rentable foot per year. The number in the term sheet was 55% of the answer.
Then it splits that total along the line that actually matters. Of the $1,720,211, some is fixed by the document you are being asked to sign and some is a bill somebody else writes later. The operating expense pass-through is $393,259 of it, and nothing in the lease caps it. Rentable square footage is the same kind of number: GSA's leasing rules define it as the area a tenant is charged for and state plainly that it is determined by the building owner.
Written for the founder signing their first commercial lease and for the owner who is renewing one and has never totalled the last term. It sits alongside the customer contract review, which does the same job on the paper your customers send. Supplier paper works the same way, which the price increase response tests against its own escalation clause. The output feeds the runway question the SAFE conversion model is answering, and belongs in front of any cost reduction plan, because rent is usually the second line on it.
Every checklist names CAM. None of them adds it up
Search this and you get lists. Check the escalation clause, check the CAM, check the renewal option. All true, and none of it tells you what the lease costs, which is the only question a lease review exists to answer. Two numbers on the same document behave differently: base rent rises 3.5% a year because the lease says so, and operating expenses rose 5% a year in this building because they did. Over seven years the first reaches $39.34 a foot and the second $15.41, a 34% rise on the line nobody agreed to.
The free rent is the tell. Three months abated looks like $33,600 off, and it is worth $21,525, because operating expenses stay payable through the abatement. That is 1.25% of the term. Meanwhile the improvement allowance covers $35 a foot against a build-out quoted at $92, so the tenant funds $239,400 of permanent work on a building somebody else owns. The cash leaves in year one and the deduction does not follow it: nonresidential real property carries a 39-year recovery period.
The last clause is the one nobody prices, because the lease states it without a number. Restore the premises to shell condition on expiry, which for this build-out is roughly $18 a foot, or $75,600 due in a year when the business is already paying to move. Add the load factor and the picture completes: 4,200 rentable feet against 3,650 usable is 550 feet of corridor and lobby you are renting, so the real figure on space you can occupy is $67.33.
How it works
Send the lease
The whole thing, including the work letter, the rules and regulations, and any exhibit the lease refers to.
Describe the fit-out
The use and the work involved. A contractor's rough number sharpens it, and its absence gets flagged.
Total the term
Every dated and recurring obligation is modelled forward, with the escalations compounded and the concessions netted.
Read the split
Fixed against discretionary, with the negotiating list ordered by how much cash each clause moves.
What you get
- Total cash over the full term, year by year, with every component separated
- The split between what the lease fixes and what the landlord sets annually
- Effective cost per rentable foot and per usable foot, so the load factor is priced
- The gap between the improvement allowance and what the fit-out will really cost to build
- End-of-term obligations costed in the year they land, including restoration and holdover premiums
- Every concession valued net of the charges that stay payable all the way through it
- The clauses worth negotiating, ranked by how many dollars each one moves
Common questions
Why is the headline rent such a poor guide to the cost?
Because it is one of four numbers and the smallest one is missing entirely. In the worked lease, base rent is 58.8% of the seven-year total. The rest is the operating expense pass-through, the build-out above the allowance, and a restoration obligation the lease describes without ever costing it.
What does the fixed versus discretionary split actually tell me?
Which dollars you can still negotiate and which ones you are handing to someone else's judgement. Here $393,259, or 22.9% of the term, is an operating expense budget the landlord writes each year. A cap on its growth is usually cheaper to win than a reduction in base rent and is worth more than it looks.
How can it estimate a build-out I have not priced yet?
It works from your use and the work letter, and it flags the estimate as an estimate. The point is not precision, it is that the allowance and the real number are different and the gap is yours. A contractor's rough figure sharpens it, and the review tells you which exhibit to send them.
Is the load factor negotiable?
The factor itself rarely, the consequence sometimes. GSA's own leasing rules describe rentable square footage as determined by the building owner, which is exactly why it is worth reading rather than accepting. Where it is high, ask for the measurement, then negotiate the rate rather than the footage.
Does this work on a lease I have already signed?
Yes, and it is the second most common use. You get the true run rate, the years the escalations bite hardest, and the end-of-term obligations with enough notice to budget for them. Renewal options usually carry a notice deadline measured backwards from expiry, and that date gets calculated.
Do I still need a real estate lawyer?
For anything you intend to sign, yes. This gets you to that conversation knowing which three clauses are worth the hour, which is the difference between a cheap review and an expensive one. It reports what the document says and what its own terms total, never whether a term is enforceable where you are.
Commercial Lease Review and True Cost
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