Who Should Pay the Impact Fees?

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In a sellers’ market, like the one we’re in now, negotiation for leased space gets tough. Landlords grant far less concessions on a deal than they did just a few years ago. Inventory for well positioned space is low, demand is high. In the race for space, prospective Tenants sometimes agree to pay for items that they normally would not, such as items that are traditionally supplied by the Landlord.

There’s a catchy adage attached to what items Tenants’ believe are the Landlords responsibility to tender. It goes ‘If it stays, the Landlord pays’. Utilities, structural improvements, and necessary ancillary services (parking lots, etc) are among these items – they ‘stay’ with the space after the Tenant leaves. BUT there is another, sometimes large ticket item, one that rarely gets brought up at the initiation of a deal – impact fees.

Impact fees are imposed by the city or county; as such the rates vary from county to county, from city to city. They are called many things. They are hidden under names like, reservation fees, sewer capacity fees, meter fees, connection charges, tapping or tap-in fees, EDU fees, availability fees, the list continues.

In some cases these fees are zero or negligible. Sometimes there is a moratorium, but in many cases impact fees are an unforeseen cost that blindsides the Tenant when they go to pull their building permit. Some building departments will hold your permit hostage until these fees are paid in full. I’ve personally seen impact fees across the board. I’ve seen some impact fees as high as $300,000 in parts of Maryland attached to the use of a patio. I’ve seen some in Florida that we’re $5,000. I’ve seen some that were $300. It really depends on the location of your project.

If you’re interested in a space, especially if you’re going from one use to a more intense use (for example going from retail to restaurant) inquire about impact fees. Ask your broker to vet this for you. Since these ‘impact fee credits’ (they become credit as soon as they are purchased) stay with the property, they are assets to the Landlord. Get language into your LOI that makes any payment of impact fees or like charges, the responsibility of the Landlord. If this item becomes a negotiation point, be sure that you know the valuation, that your broker or architect has inquired about the dollar amount due and when that amount is due.