As more companies streamline, executives should explore the liabilities hidden in their office leases. Consider:

• An internationally known retailer signed a lease, reviewed by its lawyer, that didn’t define its rentable area. This left the company without any way to verify the high operating expenses.

• A major computer company neglected to reserve valuable sublease rights. This severely restricted its ability to get rid of costly unused space.

• A Fortune 500 manufacturer accepted an office lease with an enormous loophole that could make it liable for millions in extra charges.

     Liabilities like these creep into office leases because even sophisticated tenants are seldom a match for their landlords. Corporate lease administrators may be responsible for many buildings, but they don’t survey the market continually like their landlords do. In smaller corporations, chief executives may be involved with complex lease negotiations perhaps once every five or ten years, while their landlords stay sharp by negotiating leases every day. A real-estate lawyer will do much to protect a client’s interest but often isn’t equipped to advise on business points – many legally acceptable arrangements aren’t good business deals.

     So it’s a common, costly mistake to consider a lease negotiation as routine or to renew with the landlord on basically the same, current terms. An office lease, one of the biggest costs a company faces, usually affords many opportunities to realize substantial savings. Here are key questions to help you identify the hot spots.

     How big is the gap between the space you pay for and the space you actually use? Chances are your rentable area includes not just your office, but much more, such as corridors, lavatories, utility rooms and a portion of the lobby. These add-ons are reasonable in theory. Some landlords, however, add an arbitrary percentage – perhaps 25% or more of your usable area – to figure the rentable area. Other landlords periodically "remeasure" space. Recently, during the course of a lease renewal, a landlord claimed a tenant’s space had grown from 41,000 to 44,925 square feet, which would mean almost a 10% rent hike. In this case, the landlord made no attempt to explain how the expansion took place; it was a take-it-or-leave-it proposition.

     How much is added to your electricity bill? When electricity isn’t directly metered, overcharges are common. If your electricity is submetered, negotiate for bulk-rate purchases. Try to ensure that your landlord’s added administrative charges reflect actual work.

     Instead of metering, many landlords include a lump sum for electricity in the base rent. This amount is often deliberately set above normal office usage, to protect the landlord, and usually it’s adjusted only up – even if rates go down. When your landlord bills this way, you may need an electrical consultant to determine whether the bills are reasonably related to your electricity consumption and your landlord’s costs. Negotiate whether you or the landlord pays the consultant’s fee.

     Are discretionary items being swept into your operating-expenses bill? In many cases, tenants are billed for discretionary items not reasonably linked to the cost of operating a building – salaries for the landlord’s executives, legal fees and promotional expenses, for example. These should be specifically excluded from your operating expenses.

     Are you vulnerable to significant overcharges for alterations and improvements? Your landlord may require you to use resident contractors for your initial work in building out the office space to accommodate your needs or the work you do during your lease term, but bidding out work to general contractors is likely to bring you a better price. The tenant portion of the initial work can quickly reach $40 to $50 a foot for interiors that aren’t lavish. So insist on the price protection of competitive bidding.

     Does your lease require you to carry too much insurance? Boilerplate insurance requirements may unnecessarily increase your least costs. Fort instance, a few years ago, "all-risk" coverage was generally available. Today, that coverage is prohibitively expensive. If you’re still carrying all-risk coverage to satisfy an old lease, you should consider alternatives – fire and extended-coverage insurance or perhaps self-insurance.

     Similarly, the lease may require you to insure alterations and improvements to your lease space. You may choose to insure those things you have paid for but you shouldn’t be obligated to – simply for your landlord’s benefit.

     What are your options if you want to move before your lease is up? Though you may have decided to stay put now, the time is sure to come when you’ll be better off moving, and it’s crucial that your lease gives you enough flexibility. Landlords often insist that they be able to recapture space if a tenant wishes to sublet – eliminating your chance to profit from a rising market. But some leases can simply prohibit you from getting out altogether. For instance, you can sometimes be declared in default – an expensive proposition – simply because you don’t use your space.

     Do you have a cost-effective way to resolve disputes with your landlord? This is a vital safety valve, since many trivial disputes could easily become quite expensive. Landlords are often willing to promise that if you and they disagree over operating costs, electricity, the correct amount of real estate taxes and so on, you can always take them to court. This gives you nothing you didn’t already have, and gives your landlord no incentive to settle. A bad deal for you. Litigation is expensive, takes a lot of time, and your landlord has the time value of your money even if he’s in the wrong. Alternatives: a lease that requires arbitration; rights to self-help, such as withholding certain payments; audit rights that enable you to verify your landlord’s charges; and the right to a prompt refund with interest if it’s determined that you overpaid any charges under your lease.

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to help cut occupancy costs

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