Nobody likes surprises when it comes to hidden costs. Particularly when it comes to a big ticket, business-related expense such as signing a multi-year lease for a commercial office space.
Often you can see a listing online or tour it in person without learning about miscellaneous hidden costs. Frequently, you won’t learn about these charges until the lease negotiation process starts. Worse, hidden charges can potentially blindside you during the negotiating process, once you receive a draft lease, and sometimes, even after you sign the lease.
Especially in the New York City commercial real estate market, these hidden costs can negatively impact a company’s budget. Notably for a startup or small business.
Aside from your rent (including budgeting for rent escalators), taxes, and overhead expenses, you can be stuck with expenses you never budgeted for.
So, to help you avoid unexpected costs, we created this list of seven hidden charges you should prepare for when leasing office space in New York City. As a business manager, preparing for these potential hidden charges will give you peace of mind.
1. Cleaning Services
Office cleaning is usually free in most Class A buildings. However, this charge is usually an extra item in Class B or C buildings. So be sure to take this into account. Additionally, professional office cleaning services can cost up to a few dollars per square foot, so consider this when you budget office costs. A “green” or sustainable cleaning service may cost extra as well.
2. Monthly Rubbish Removal
Waste management impacts commercial real estate. Class A base rents typically include monthly rubbish removal. However, in some class B buildings and most class C, you, as the tenant, are responsible for covering this. Note that often this charge is not a flat fee. Your costs will depend on the amount of trash your business yields in an average month.
3. Monthly Water, Sprinkler, and Guard Services
If you are considering leasing office space in a Class B loft building or a Class C property, ask about monthly water, sprinkler, and guard charges. But don’t wait around until the lease negotiation to ask. Ask ASAP and when you tour the space. Not only are these fees standard. They are also extremely costly and can exceed 5% of your monthly rent.
4. Freight Elevator Move-In Charges
Move-in charges are one-time fees and typically aren’t very much. Usually, you’ll get charged for using the freight elevator, among other things. However, if your landlord is accommodating, asking them to nix the fee or cover it is not unreasonable. It is a fair request from your end.
5. Annual HVAC Maintenance Fee
Tenants usually shoulder utility costs, including heating and air conditioning. However, there are other hidden charges potentially included. One is an annual HVAC maintenance fee.
If the landlord provides a packaged HVAC unit for your space, usually you’re on the hook for a pricey annual maintenance contract. It can cost up to a few thousand dollars. Thus, the charge can add up throughout a five- or ten-year lease term. One way to avoid this cost is to lease an office with a window HVAC unit. You can run them anytime, at your discretion, without incurring extra costs.
6. Supplemental HVAC Usage Charges
In addition to the annual HVAC maintenance charge, another hidden office space cost involves extra costs if you run your HVAC after hours.
In other words, a commercial office building’s HVAC typically shuts down after 7 PM during the week and does not run on Saturdays, Sundays, or national holidays. The landlord can charge you if you use your HVAC unit during these times.
Be sure to ask about this expense before submitting an offer, particularly if you intend to use your office on weekends or after hours. It can get very costly.
If the landlord doesn’t budge, you can always install an additional unit in your space that you can run as you please.
7. Business Improvement District (BID) Taxes
Depending on the neighborhood you lease office space in, you may have to pay a BID or Business Improvement District Tax. Neighborhoods may levy a BID Tax as a supplemental charge to fund projects or provide supplemental services within its boundaries. Specific New York City neighborhoods like the Garment District and The Financial District charge a BID Tax. The tax usually gets passed along to tenants in the same manner as real estate taxes. However, BID taxes are generally very minimal. Yet, like anything else, they tend to add up over time.
Wrapping Up
Hopefully, this information can help you better understand the actual, all-inclusive costs of leasing a commercial space in New York City. These small, miscellaneous charges can quickly add up. You typically won’t find these charges online, and you usually won’t even hear about them until the negotiation phase or later. Hence, you should always ask managing agents and landlords about these specific charges when you zero in on leasing office space.
The sooner you get a full picture of all potential costs, the more effectively you can budget ahead of time.
Furthermore, consider that Class A buildings generally have fewer miscellaneous charges than Class B and Class C buildings.
Lastly, note that some charges are negotiable while others are not. If you’re interested in a space and these charges are a concern, discuss them with your broker. Ask about them and get to the bottom of things before formulating an offer.
If you have any other questions or concerns about hidden charges when leasing New York office space, speak to a commercial broker and tenant representative with years of experience. Many of these brokers have worked with a plethora of different kinds of tenants. They have seen it all with hidden commercial real estate costs, from the typical to the absurd. A good broker and tenant rep can counsel you on what you should prepare for. Moreover, they can help you negotiate charges you did not foresee or charges you prefer the landlord to cover.
