IS IT TIME FOR AN OPERATING COST AUDIT ? TENANTS UNITE !
CO-SUMMER 2010Author :
Dale Willerton 
Dale Willerton is The Lease Coach - a Lease Consultant who works exclusively for tenants. Dale is a professional speaker and author of Negotiate Your Commercial, Retail & Office Lease or Renewal.
Need help with your new lease or renewal?
Call Dale at 1-800-738-9202,
e-mail DaleWillerton@TheLeaseCoach.com
or visit www.TheLeaseCoach.com and/or www.HelpULeaseCommercial.com.
When leasing commercial space, business tenants pay two rents – the base rent and Operating Expenses or Common Area Maintenance (CAM) charges.
While the base rent can be negotiated, the CAM charges are typically not negotiable.
When was the last time you challenged a landlord or property manager about these Operating Expenses or Common Area Maintenance (CAM) charges ? Probably not recently or never, right ?
To clarify, Operating Costs are the day-to-day management and maintenance expenses charged to the commercial tenants; examples include asphalt repairs, snow removal, property insurance and so on. Commercial tenants pay a proportionate share of these costs based on the space they occupy. Therefore, if a tenant occupies 12% of a building, he/she will pay for 12% of the Operating Costs. Paying by this said proportionate share is the industry standard but, of course, there are deviations for special circumstances like free-standing buildings and so on.
Nonetheless, every lease generally or specifically outlines what can or cannot be charged back to the tenants… but it’s up to the tenants to be watchdogs. A good industry rule of thumb is that an expense only qualifies as a legitimate recoverable Operating Expense if all the tenants benefited from the work (such as fixing parking lot potholes – but not replacing installing window blinds or painting walls for a tenant as an incentive to renew his/her lease).
I can tell you from first-hand experience that landlords and their property managers often take liberties and frequently make mistakes in charging back or recovering Common Area Maintenance charges from commercial tenants.
Practically every Operating Cost audit I performed (typically for a group of tenants in the same property) was riddled with discrepancies or chargebacks that should have been born by the landlord at the landlord’s expense or by a single individual tenant.
One of the most common discrepancies is when the landlord doesn’t pay for the Operating Costs attributable to vacant space. If the building is 15 per cent vacant, the landlord should be paying proportionate share attributable to that vacant space. The other tenants should not be required to carry the weight.
Mathematical miscalculations by the property manager administering the Operating Costs are not uncommon. In one Operating Cost Audit that we performed, we caught the error and, therefore, every tenant’s administrative charges had to be adjusted.
These are a few of the shocking expenses I have uncovered that the landlord wrongly charged back to tenants: insurance and snow removal attributed to other distinctly separate properties, flowers for the landlord’s secretary, kiosks purchased for mall common areas from which revenue went directly to the landlord, landlord’s work improving the interior of a unit for lease and so on.
Consider getting all the tenants together for an Operating Cost audit. Don’t be fooled by a letter from the landlord’s accountant verifying that the books have been audited. All that means is that there was a matching invoice for every check written by the landlord. It doesn’t mean the charge was a valid Operating Cost.
Operating Cost questions are welcomed; please e-mail me directly to DaleWillerton@TheLeaseCoach.com.
While the base rent can be negotiated, the CAM charges are typically not negotiable.
When was the last time you challenged a landlord or property manager about these Operating Expenses or Common Area Maintenance (CAM) charges ? Probably not recently or never, right ?
To clarify, Operating Costs are the day-to-day management and maintenance expenses charged to the commercial tenants; examples include asphalt repairs, snow removal, property insurance and so on. Commercial tenants pay a proportionate share of these costs based on the space they occupy. Therefore, if a tenant occupies 12% of a building, he/she will pay for 12% of the Operating Costs. Paying by this said proportionate share is the industry standard but, of course, there are deviations for special circumstances like free-standing buildings and so on.
Nonetheless, every lease generally or specifically outlines what can or cannot be charged back to the tenants… but it’s up to the tenants to be watchdogs. A good industry rule of thumb is that an expense only qualifies as a legitimate recoverable Operating Expense if all the tenants benefited from the work (such as fixing parking lot potholes – but not replacing installing window blinds or painting walls for a tenant as an incentive to renew his/her lease).
I can tell you from first-hand experience that landlords and their property managers often take liberties and frequently make mistakes in charging back or recovering Common Area Maintenance charges from commercial tenants.
Practically every Operating Cost audit I performed (typically for a group of tenants in the same property) was riddled with discrepancies or chargebacks that should have been born by the landlord at the landlord’s expense or by a single individual tenant.
One of the most common discrepancies is when the landlord doesn’t pay for the Operating Costs attributable to vacant space. If the building is 15 per cent vacant, the landlord should be paying proportionate share attributable to that vacant space. The other tenants should not be required to carry the weight.
Mathematical miscalculations by the property manager administering the Operating Costs are not uncommon. In one Operating Cost Audit that we performed, we caught the error and, therefore, every tenant’s administrative charges had to be adjusted.
These are a few of the shocking expenses I have uncovered that the landlord wrongly charged back to tenants: insurance and snow removal attributed to other distinctly separate properties, flowers for the landlord’s secretary, kiosks purchased for mall common areas from which revenue went directly to the landlord, landlord’s work improving the interior of a unit for lease and so on.
Consider getting all the tenants together for an Operating Cost audit. Don’t be fooled by a letter from the landlord’s accountant verifying that the books have been audited. All that means is that there was a matching invoice for every check written by the landlord. It doesn’t mean the charge was a valid Operating Cost.
Operating Cost questions are welcomed; please e-mail me directly to DaleWillerton@TheLeaseCoach.com.