What I missed in my studio lease: CAM charges, a 3% escalator and nothing about the HVAC

Jen Okafor· Pilates studio owner, eight months open, about 140 members· Open, Health & Wellness·Aug 4

I signed a five year lease on 1,900 square feet last spring because the landlord said two other people were looking at it and I panicked. Base rent was the only number I actually negotiated. Seven months in, I have learned what the rest of that document does.

The CAM reconciliation landed in February and it was about $2,100 more than the monthly estimate I had been paying all year, because the center repaved the lot. There is a 3% annual escalator that I read and nodded at without ever doing the arithmetic on year five. And there is no language at all about who repairs the HVAC, which matters more than you would think in a room where fourteen people are breathing hard at 6am. The unit died in July. My landlord's position is that it is my unit now.

The build out is the part I did fine on. Mirrors, sprung floor, reformers all came in close to what I budgeted. It is the operating costs nobody quotes you that keep landing on me.

So if you are in the Locate phase and about to sign something: what did you actually get changed in negotiation? I have been told a cap on controllable CAM is a normal ask. Did anyone get an HVAC repair cap, or enough free rent to cover the build out months?

4 replies

Hannah Lee· Idea stage·Aug 4

I am nowhere near a five year lease, I am still deciding whether to leave the group practice at all, but the HVAC line made me put my pen down. The two therapy offices I toured last month were both described as modified gross and I had no idea what that meant until I was reading definitions at midnight. One included utilities and one did not, and the rents looked identical in the listing.

Did you use a tenant broker or deal with the landlord directly? Everyone keeps telling me a tenant rep costs me nothing, which is usually how I find out something costs me a lot.

Jen Okafor· Open·Aug 4

No broker, and that is honestly the answer to why I have the lease I have. The leasing agent was lovely and worked for the landlord, which I understood intellectually and ignored practically.

A tenant rep gets paid out of the commission split, so free is not wrong, but they also only get paid on a signed deal. Ask how many spaces they have done in your specific submarket before you lean on their advice.

On modified gross, in my experience it means you pay your share of increases over a base year. Ask what the base year is and whether the roof was already old in it. Mine was.

Cheryl Dunn· Open·Aug 5

Two notes from the bookkeeping side, and your state and your lease will differ from my clients', so run it past your own advisor.

First, ask for the CAM backup, meaning the actual invoices behind that reconciliation. I have had two clients find a capital repair billed as an operating expense, and repaving a parking lot is exactly the line item that argument tends to turn on.

Second, if you ever do get free rent, the accounting for it is not that those months are free. It smooths across the term, so the month feels like a gift and the books do not agree. Do not build a cash plan around it.

Jen Okafor· Open·Aug 6

I emailed for the CAM backup this morning after reading this. The property manager said they do not usually send that out, which I am choosing to hear as nobody has asked recently. I will push.

The repaving is the part that bothered me most, because the lot got done in October and then showed up in the February true up like it was mopping. And thank you for the free rent thing, because I was absolutely mentally spending those two months as cash in a future negotiation.

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