There are many risks associated with real estate transactions, including leases. While a purchase is obviously a bigger investment that comes with more risks, leases can also impose unexpected obligations on the party acquiring real property.
The due diligence process before a real estate transaction involves carefully assessing the situation. People may need to inspect the property to look for defects and factors that could impact their use of the space. They also generally need to review the lease itself thoroughly to identify potential expenses.
What hidden costs could renters potentially incur when they sign a Utah lease?
Maintenance fees
Landlords generally have to maintain their properties. However, particularly when they own commercial space, they may charge their tenants for the services that they provide. Maintenance fees in leases can range from a flat rate required in addition to rent every month to a variable fee assessed based on monthly costs incurred by the landlord. Particularly in scenarios where maintenance costs involve paying a percentage of overall expenses, they can lead to sudden and unexpected surges in monthly obligations.
Utility costs
Tenants, especially residential tenants, sometimes assume that their landlords cover certain expenses, such as water and sewer fees. Leases frequently make tenants responsible for their own utility payments. In some cases, people who do not validate the utility costs they must cover when renting a property could overextend themselves and struggle to meet all of their monthly financial obligations.
Property taxes
Commercial leases may sometimes include provisions that make tenants responsible for covering property tax costs. Tenants may need to set funds aside every month to cover those expenses or may need to pay the bill directly when it comes due annually. The property taxes due on commercial facilities can significantly increase the monthly costs associated with acquiring commercial facilities.
Future rent increases
Landlords sometimes include provisions in their leases that allow them to increase rental amounts annually or every time they renew the lease. In some cases, those automatic rent increases apply regardless of the condition of the property or the state of the market. Tenants could find themselves paying 10% more the next year and then another 10% beyond that the following year. Those increases add up to make a property unaffordable within a few years of establishing tenancy.
The only way to truly know the costs that a tenant must cover is to thoroughly review a lease document. Working with a Utah real estate attorney can help tenants evaluate leases and negotiate with prospective landlords. Tenants who understand the true cost of a lease can make informed decisions about any property they choose to rent.