Are your tenants paying their share – is your landlord overcharging you?

Most businesses are affected by leases in one way or another, either as a tenant or as a landlord.  Lease documents can be long and difficult to read, but paying attention to the small print could make your wallet larger particularly related to common area maintenance charges (CAM).

In Triple Net Leases, which are most commercial leases, landlords pass along the costs of maintaining the common areas of a building to the tenants through CAM charges.  These costs may include janitorial, landscaping, snow removal, maintenance, elevator repairs, insurance, real estate taxes, management fees… any expense of maintaining the property – but are typically defined in the lease.  The lease document will generally define what expenses are included and how the individual tenant will be assessed their portion of the costs.  A typical lease might say that a tenant pays based upon a formula, the numerator of which is the tenant’s square footage, and the denominator is the total square footage of the property.

So where can problems arise?  In reviewing leases, we frequently see that the landlord is not properly computing square footage of either the tenant’s space or of the property in total.  We also see landlords that either 1) charge for expenses which were excluded from the definitions in the lease, or 2) not charge for expenses which they were allowed to charge.  In these cases, either the tenant was at a disadvantage or the landlord was at a disadvantage.

In these days of higher vacancy rates in many properties, improperly computed CAM charges can quickly become an issue.  Having a proper understanding of the terms included in the lease and obtaining proper documentation of expenses could result in savings to either the tenant or the landlord.

For more information, contact Mike Kovacs or your ORBA advisor at 312.670.7444.