Urgent Alert

Evaluating energy expenses of your new rental facility

Date: November 15, 2018
woman working on laptop



The operating costs of renting a new facility are a big consideration for a small company. And, for many, electricity is one of the biggest operating expense categories. When searching for a new workspace, pay close attention to the operating expense clause during the lease negotiation. It can be an excellent way to control those costs.



An operating expense clause is the part of the lease that lets your landlord recover normal out-of-pocket costs. These costs can include maintenance, repairs and replacements to operate a building. Understanding hidden costs and restrictions buried in this section of the lease can help businesses save money on energy costs and make informed decisions.



Here are some factors to consider as you evaluate renting options:



Energy expenses:


Leases typically state that electricity will be paid for in one of the following three ways:



1.      Direct metering is straightforward and may be the most affordable for your business. When the utility meters your electricity, you pay the actual charge for what you use.


2.      Submetering takes place when only one meter in the building connects to the utility. You or your landlord may install a separate meter to measure the electricity you use. Your landlord pays the utility and you pay the landlord. This option may be the best fit for your business, provided you have the necessary information. For example, if your landlord is buying electricity at a lower bulk rate, bargain for the benefits of that lower rate.


3.      Rent inclusion lumps your electric charges with your rent if the building only has one meter. This method can be the riskiest for tenants. The landlord usually estimates your electricity usage by asking about your operations. This would include your equipment and operational schedule. Such estimates are not as certain as measuring the specific amount of electricity you use.


Energy efficiency:


Unless they're rehabbed, older buildings are usually less energy efficient. Energy efficient equipment such as HVAC, lighting, refrigeration — as well as regular maintenance and service — can help reduce the electricity costs to run the building and your portion of operating expenses. If equipment needs an upgrade, ask your landlord if they are willing to do it. If you are absorbing a portion of the cost, ask for some demonstration that operating expenses will be reduced as a result.



Other factors:


Consider the size of the current breaker panel at the location. Check and confirm that the panel can supply your energy needs. It helps you cut the unexpected upgrade costs after you sign the lease.



Last, but not least, if your business is dependent on gas, check to see if the current configuration at the location will meet your needs. Review additional resources to run and grow your business on pge.com/business.