Energy Costs in Commercial Real Estate Leases
Understanding Office Space Electricity Costs
Commercial real estate leases in New York City can be lengthy and complex. Not understanding them can cost you money. In the course of helping you negotiate your lease for commercial office space, the right broker will ensure that you are aware of all additional charges – such as office space electricity costs – that can quickly increase your monthly costs.
Electricity usage clauses are notoriously long and complicated, often allowing your landlord to incrementally increase your electricity charges over time. This can cost you thousands of additional dollars for electricity that you are not actually consuming. Smaller New York City tenants particularly need to be careful of this.
Attorneys are often unfamiliar with how electricity is measured, so it’s important to have on your side a commercial real estate broker who is experienced with all aspects of commercial property leasing. Metro Manhattan Office Space brokers will help ensure that you are being billed appropriately and in the most cost-efficient manner under your New York commercial real estate lease.
3 Ways Electricity is Billed to Commercial Tenants
- Rent Inclusion: In this system, the landlord bills electricity costs directly to the tenant on a monthly basis and at a fixed amount per square foot. Typically, electricity costs for commercial office space range from $3.00 to $4.50 per square foot. Smaller tenants are often billed on a rent inclusion basis because it is too expensive to install a meter in a smaller space. Given that the majority of tenants in the commercial real estate market in New York City are small tenants, rent inclusion is a prevalent method of billing. Without the appropriate protection, tenants are often billed for more than the amount of electricity they are actually consuming.
- Direct Electricity: Typically the most cost-effective electricity billing method is called direct electricity. This permits the tenant to buy electricity directly from the utility company. An electricity meter must be present in the space for direct electricity to be an option. Full floors or large commercial spaces tend to have their own electricity meters.
- Sub-Meter: In this case, the demised space has its own meter, which the landlord reads each month. The landlord bills the tenant for the cost of the electricity consumed, plus an administrative fee that ranges from 5 percent to 20 percent of the base electricity costs. In some cases, the landlord of a large building may be able to negotiate better rates with the utility company than a tenant could, making it cost-effective for the tenant despite the administrative fee.
Electricity usage is only one component of additional monthly fees you may pay under your commercial real estate lease. Other components may include air conditioning, water, sprinkler, guard services, rubbish removal and commercial liability insurance. It takes an experienced broker to not only help you understand the impact these costs will have on your rent, but also to help you avoid any unnecessarily high landlord fees.
Metro Manhattan Office Space has been working with reputable landlords in New York City and helping tenants understand and negotiate lease terms since 2004. Finding your ideal location is only the first step. We then help ensure that all of your interests are being protected. We know that avoiding excessive costs can mean the difference between success and failure in your business.
For a free consultation, contact Principal Broker Alan Rosinsky of Metro Manhattan Office Space at 212-447-5403.