Leasing office space directly from a commercial landlord has its perks, but they don’t come cheap.
Seeing your firm’s name displayed on the door is good for your ego. Decorating the office exactly how you want it is rewarding. Being able to make up all the rules isn’t bad either. That is, of course, if your firm is willing and able to pay for the privilege.
There’s a pretty significant expense associated with leasing an office directly from a landlord; particularly if your practice is located in a major metropolitan area like New York, Los Angeles, Boston or Washington, DC.
While the cost of the square footage may seem reasonable, the monthly expenses can quickly make even a small leased space unreasonably expensive. To help, we have put together a list of some recurring expenses that you would be responsible for when leasing space directly from a landlord.
Under the terms of most leases, you will be paying for:
Many commercial buildings do not have separate electrical meters where you pay your own electricity directly to the utility company. More often, you will pay your share of your suite’s allocated portion of electricity for the entire building, which is typically an extra $3 – $5 per square foot based on an annual basis.
Landlords pass through the cost of cleaning services, usually at a cost of $3 – $5 per square foot. However, these services are only the most basic of services, including daily trash pickup and carpets vacuumed once per week. If you want your kitchen pantry cleaned every day, that’s extra. Have wood floors? That’s extra. Want your carpets shampooed? That’s extra. Expect to pay an additional $200 – $300 per month in cleaning fees, over and above the fees allocated in your lease.
Most landlords pass through your suite’s pro-rata share of the property taxes. It’s usually billed once throughout the year, but some landlords may prorate it over the year.
Landlord required insurance
All landlords require that you get some form of general liability insurance. If something goes wrong in the office, including a flood, you must first go to your insurance carrier to recover from damages. Policies in cities are more expensive than policies in the suburbs, and policies in cities that are consistent terrorist targets, like New York or Washington DC are even more expensive.
Phone lines, Internet, Copier, Mail equipment expenses
All the nice office equipment and services that were once taken care of for you in the office sublet or executive suite will now be your firm’s responsibility. Phone lines can run $80 per line, plus toll charges, or you can get a T1 line in for $750/month. A commercial Internet pipeline with sufficient bandwidth to support three attorneys will run a minimum of $250 per month for FIOS service, and $750/month or more for T1 service. A copy machine lease runs about $350/ month, and the postage meter will run about $35 a month.
The unfortunate thing about office services is that the equipment that is needed to support a four attorney firm can also support a firm of 50. When it comes to office equipment and services, small law firms have very little economy of scale, rendering the per attorney cost for these services very high as compared to office sublets or executive suite rentals.
Having someone greet your clients when they come to your office helps your professional image. So does having a live person answer your phone. This would require you to hire a full or part time employee to manage this role. So you would need to factor in the cost of hiring an employee.
And the overall time of managing the space
When you rent your own office space, someone needs to manage all the details required to keep it running. There will be no fewer than 10 vendors required to keep your office space operational, all of whom will require attention, and a check, on a regular basis.
Some firms are lucky enough to have staff they can delegate office management duties to, but not every task can be delegated. Even in a small space, it will require five to seven hours of time every month to keep the office up and running. At even a modest billable rate of $300 per hour, your firm will lose anywhere from $1,500 to $2,100 a month in billable time.
For many lawyers and law firms, leasing office space has worked for them for years. But even though it is great to pull into your office, and seeing your firm’s logo shining on the sign outside the front door, that privilege doesn’t come cheap. When searching for your next law office space, don’t be fooled by the low cost of the square footage, remember that there are most certainly other, more expensive, expenses lying right around the corner.