Tenants must understand their lease before signing it. Much too often, a tenant looks back and realises they have agreed to something that is now costing them thousands of dollars per month. This paper opens the door and introduces the tenant to the many types of possible overcharges. It looks at several basic areas of overcharging and explains why they exist and how to avoid them. These areas include pro-rata share allocation, administrative charges, non-common area maitenance (CAM) expenses, real estate taxes and caps. The paper also looks at some specific overcharges related to office and industrial leases such as base year and gross-up clauses. Understanding all the ins and outs of a lease is very difficult, especially for someone not in the real estate business. As with most things, the more detailed it gets, the more complex it becomes. This is especially true for additional rents such as CAM, operating expenses, real estate taxes, insurance and other monetary lease items. These items, if not fully understood, will become 'hidden rent'.
While not a new discipline within well-structured lease administration departments, the function of lease renewal negotiation has taken on a life of its own in today's economic climate for both tenant and landlord positions. One leading lease administration director said that he has extended the renewal negotiation calendar from its customary 18-month period to include stores with renewal dates four years out.
A common misconception we hear from clients when discussing possible lease audit candidates is, "These leases are capped so we don't worry about them." However, often the opposite is true. In fact, leases that have NTE (Not to Exceed) Caps may need more review to determine if landlord has accurately billed the tenant.
A common statement from clients or potential clients when analyzing their portfolio to determine how much money a lease audit program will save them is: "We don't worry about overcharges on these leases because our CAM and Real Estate costs are capped." Right?". Wrong!
OK. Smack in the middle of the CAM or Operating Expense statement is an enormous amount for insurance. You immediately get that sick Feeling in your stomach because you've been here before and you know that insurance is so complicated that overcharges could be lurking anywhere.
The National Retail Tenants Association (NRTA) and Boston University (BU) have announced the expansion of the college's real estate certificate program to include lease administration classes. The first of these courses, which launched on April 12, is entitled "Methods and Techniques of Commercial Lease Abstracting" and is being taught by Rick Burke, president of Marblehead, Mass.-based Lease Administration Solutions and a founding member of the NRTA.
No matter the size of the portfolio, the one common misconception is that lease abstraction is an easy task. This is not true. Abstracting a lease portfolio can vary in complexity and duration depending on the size and requirements of the project. Summarizing paragraphs of information from the lease to accurately communicate the critical points to the reader is in fact very difficult. Aside from the critical information, what is important to one company may not necessarily be important to another. However, when used as a tool, the abstract adds value to a company’s informational arsenal by giving it the ability to analyze, compare, and report key information across its portfolio. The following are five common pitfalls that a company can expect to face when embarking on a lease abstract project.
Real estate taxes have long been an area where a tenant could expect to find overcharges by the landlord. But the review process was long and cumbersome due to the lack of availability of information. However, in today’s dynamic environment, reviewing real estate taxes has become much simpler.
The concept of mixed use buildings has been around for decades. Urban buildings dating back to the 1900s had businesses on the first floor and residential or manufacturing on the upper floors. Beginning in the 1950s, decay of inner cities and the creation of the mall ended most mixed use projects. Today there is a resurgence of mixed use developments as a result of urban renewal, renovated historical buildings and lifestyle shopping centers.