The Warehouse Lease: Part II of II

Manage your Warehouse Lease with this Annual Checklist

Real estate is the second highest cost in a logistics warehouse operation. It can represent from 20 to 35 per cent of the total cost of running that facility. For managers who have financial and line responsibilities for a logistics operation, legal and financial implications are often misunderstood.

This article offers a five-year checklist to effectively manage a building lease, while also controlling costs.

Understanding a building lease – including both legal and financial responsibilities – is the first big step in managing your relationship with the landlord, as well as minimizing costs over the terms of the lease. Since many leasing issues can arise over the lifespan of the five-year term, this checklist covers several scenarios that range from expanding or contracting space you need, to options for renewing the lease.

Year 1:

  • After the offer to lease has been accepted, the landlord will provide a formal lease document for your review and signature.
  • Review the formal lease document with your legal department or advisor before signing.
  • Advise your managers about the key financial and operating conditions of the lease: base rent, additional costs from the landlord TMI (taxes, maintenance and insurance) and your obligations such as reporting damages, requesting building modifications or subleasing.

Important: This formal lease document is your contract for the five-year term. Your company is legally obliged to comply with all the clauses and financial implications.

Year 2:

  • Audit additional costs from your landlord and review any discrepancies.
  • Hire an external auditor. This person will analyze your annual additional costs levied by the landlord, compared to agreed-upon charges set out in the lease contract. The auditor will look for errors in billing regarding taxes, maintenance and insurance.

Year 3:

  • Review current business space needs, compared to what you actually require.
  • If your site too small, review options with your real estate broker and landlord. This could involve expanding or moving to another site.
  • If the site too big, discuss the situation with the broker and landlord. Could you sublease a portion of your current space? Review your lease contract on subleasing and see if it’s worthwhile to move to a smaller site.
  • Check with your broker again about current market rates for industrial sites in the community.

Year 4:

  • This year is a continuation of the checklists for years 2 and 3.

Year 5:

  • Review options to renew your current lease.
  • Check how much notice you have to give the landlord - normally six to nine months – for either extending your lease or moving to another site.
  • Review current business space requirements.
  • If you plan to move, issue new building specs to your real estate broker.
  • Check with your broker on site alternatives vs. your current location. Determine the financial costs of renegotiating the current site or moving to another site.

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