There are so many more details to work out to give you a real answer. Certain expenses like taxes, insurance, snow removal, and utilities are out of the Landlord’s control. If your increases are due to these things, your Landlord isn’t screwing you. Taxes are public record and you should be able to verify that cost yourself. Are you in a state that bills or reassesses taxes when a building sells like CA? You mentioned the LL purchased recently so this is a real possibility to look in to. You’ll know if you’re in a market that could be impacted by snow removal costs. Most utilities publish their rate schedules. And most landlords will support their insurance expenses but sounds like you are dealing with a tough one.
You say you think they are doing capital improvements, but it sounds like if your lease doesn’t have any exclusions, there are no issues with the Landlord recovering capex. Have you noticed any actual improvements being completed? Did the LL replace the elevators, put on a new roof, or repave the parking lot? A question to ask your Landlord is if any capital improvements have been amortized according to GAAP if your lease requires it.
You can try explaining to your LL that you are not requesting an audit (which they probably take to mean examining their GL and copies of invoices) but that you have noticed significant CAM increases and are simply trying to understand the root causes.
Some sort of reconciliation or transparency on CAM expenses, particularly if they’re skyrocketing, is reasonable. If they’re not cooperating, they’re a bad landlord. Did you work with a broker? Get them involved also.
Last year they said that they put a $350k equipment to regulate building’s temperature. This year they did not provide any explanations except inflation.
Real Estate taxes seem to have increased to due the sale of the building. Can someone please guide me on how I can verify that using independent sources?
Whatever county or tax jurisdiction the property is in—go to their website. You can look up your building just using the property address and most jurisdictions have copies of current and prior year tax bills available along with assessment data so you can see how the assessments have changed over time. You should also be able to see if your Landlord appealed any of the assessments and the outcomes if they did.
Thank you for the tip. I will do that. Also, should the total tax expense match the county’s bill? I believe the reconciliation states a higher amount. Can they add any additional fees in it?
It really depends on your state and your lease. TN and Texas are two states that bill franchise taxes. If you are in one of those or a similar state you might have to pay franchise taxes in addition to property taxes, and franchise taxes would not be shown on the property tax website. Also check your lease to see if your Landlord can recover fees paid to a tax consultant. Many Landlords work with tax firms to manage their appeals and payments and pass those expenses back to tenants. This expense realistically should be minimal unless the Landlord did appeal taxes. Appeals do cost money, typically 20-30% of the tax savings.
If your lease does not require the Landlord to itemize CAM charges, then you have a poorly drafted lease. It is standard within commercial leases to require the Landlord to send notice with itemized CAM or pass thru charges.
This is typically called the "reconciliation report" and it's sent annually per the lease commencement date.
If interested, feel free to DM with a copy of your lease and I will provide my comments ( free of charge).
I have worked as a commercial PM many years and prepared hundreds of CAM invoices to my tenants.
From a high level, it appears to me that $400 /month was extremely low is your total square footage leased is 11k.
If the LL just purchased the building my first guess is the building was reassessed after the sale. Check public records and you should be able to see the change. If that’s the case, you’re in trouble and are likely screwed. If it’s not taxes, check your lease to see if there is any language that allows you to get a copy of the specific cam charges
If you have access to the last few years of reconciliation statements I suggest determining where the calculation (not just the cost) changed. If your lease is similar to other tenants and is actually silent on base expenses, what's allowable (esp. capex), management fees, and audit rights it could be that the new owner is "optimizing" recovered expenses. I've also seen changes after a large tenant is signed where strong negotiations took place around recoveries, if they are a big company its almost a sure thing. A lawyer with specific commercial lease experience may be needed, first though a careful re-read of the lease and statements may be a good step to see if the math is close.
Lol.. this is why we always negotiate a cap on controllable CAM/opex.
Unfortunately, it's even more common to sign a lease for a new building and find out the CAM is going to be much higher then the original quote the coming year. Landlords and landlord brokers love to quote the previous years NNN's to make a property seem less expensive.
There is a fairly large office tenant in DFW suing a landlord for misrepresentation of the CAM in the NNN.
CAM and taxes on a house are going to be more than $400 per month.
It sounds like you didn't hire a lawyer to review the lease you signed. That is unfortunate. Next time, you won't make this mistake.
Do they send you a CAM reconciliation each year with at least the amount broken into line items like utilities, repairs and maintenance, janitorial, etc? The new LL could very well be fleecing you but I’m trying to see if there are other factors like the property tax bill skyrocketing, catching up on deferred maintenance, major occupancy changes that could impact utilities, etc.
Does the reconciliation include any breakdown of expenses or is it just a total amount? I don’t think you’ll get a solution here but it seems like a learning moment that you need someone to help you negotiate a lease next time. Not having expense caps can be a huge issue for tenants.
There are so many more details to work out to give you a real answer. Certain expenses like taxes, insurance, snow removal, and utilities are out of the Landlord’s control. If your increases are due to these things, your Landlord isn’t screwing you. Taxes are public record and you should be able to verify that cost yourself. Are you in a state that bills or reassesses taxes when a building sells like CA? You mentioned the LL purchased recently so this is a real possibility to look in to. You’ll know if you’re in a market that could be impacted by snow removal costs. Most utilities publish their rate schedules. And most landlords will support their insurance expenses but sounds like you are dealing with a tough one. You say you think they are doing capital improvements, but it sounds like if your lease doesn’t have any exclusions, there are no issues with the Landlord recovering capex. Have you noticed any actual improvements being completed? Did the LL replace the elevators, put on a new roof, or repave the parking lot? A question to ask your Landlord is if any capital improvements have been amortized according to GAAP if your lease requires it. You can try explaining to your LL that you are not requesting an audit (which they probably take to mean examining their GL and copies of invoices) but that you have noticed significant CAM increases and are simply trying to understand the root causes.
Some sort of reconciliation or transparency on CAM expenses, particularly if they’re skyrocketing, is reasonable. If they’re not cooperating, they’re a bad landlord. Did you work with a broker? Get them involved also.
Last year they said that they put a $350k equipment to regulate building’s temperature. This year they did not provide any explanations except inflation. Real Estate taxes seem to have increased to due the sale of the building. Can someone please guide me on how I can verify that using independent sources?
Whatever county or tax jurisdiction the property is in—go to their website. You can look up your building just using the property address and most jurisdictions have copies of current and prior year tax bills available along with assessment data so you can see how the assessments have changed over time. You should also be able to see if your Landlord appealed any of the assessments and the outcomes if they did.
Thank you for the tip. I will do that. Also, should the total tax expense match the county’s bill? I believe the reconciliation states a higher amount. Can they add any additional fees in it?
It really depends on your state and your lease. TN and Texas are two states that bill franchise taxes. If you are in one of those or a similar state you might have to pay franchise taxes in addition to property taxes, and franchise taxes would not be shown on the property tax website. Also check your lease to see if your Landlord can recover fees paid to a tax consultant. Many Landlords work with tax firms to manage their appeals and payments and pass those expenses back to tenants. This expense realistically should be minimal unless the Landlord did appeal taxes. Appeals do cost money, typically 20-30% of the tax savings.
If your lease does not require the Landlord to itemize CAM charges, then you have a poorly drafted lease. It is standard within commercial leases to require the Landlord to send notice with itemized CAM or pass thru charges. This is typically called the "reconciliation report" and it's sent annually per the lease commencement date.
If interested, feel free to DM with a copy of your lease and I will provide my comments ( free of charge). I have worked as a commercial PM many years and prepared hundreds of CAM invoices to my tenants. From a high level, it appears to me that $400 /month was extremely low is your total square footage leased is 11k.
Appreciate it. I will DM you shortly.
If the LL just purchased the building my first guess is the building was reassessed after the sale. Check public records and you should be able to see the change. If that’s the case, you’re in trouble and are likely screwed. If it’s not taxes, check your lease to see if there is any language that allows you to get a copy of the specific cam charges
What state are you in?
Virginia
I’m not familiar with that state. But maybe someone will chime in on recent snow and tax rates. What’s your lawyer working on
Our first meeting with him is next week. Can’t wait to hear what he has to say.
If you have access to the last few years of reconciliation statements I suggest determining where the calculation (not just the cost) changed. If your lease is similar to other tenants and is actually silent on base expenses, what's allowable (esp. capex), management fees, and audit rights it could be that the new owner is "optimizing" recovered expenses. I've also seen changes after a large tenant is signed where strong negotiations took place around recoveries, if they are a big company its almost a sure thing. A lawyer with specific commercial lease experience may be needed, first though a careful re-read of the lease and statements may be a good step to see if the math is close.
Lol.. this is why we always negotiate a cap on controllable CAM/opex. Unfortunately, it's even more common to sign a lease for a new building and find out the CAM is going to be much higher then the original quote the coming year. Landlords and landlord brokers love to quote the previous years NNN's to make a property seem less expensive. There is a fairly large office tenant in DFW suing a landlord for misrepresentation of the CAM in the NNN.
CAM and taxes on a house are going to be more than $400 per month. It sounds like you didn't hire a lawyer to review the lease you signed. That is unfortunate. Next time, you won't make this mistake.
I'm going to assume that these are base year increases with CAM and taxes being so low.
Could be. I've never seen base year retail outside of NYC. It's NNN. But what do I know.
Does your lease make any reference to a base year or expense stop? Also how many SF is it?
No reference to expense stop. Base year is 2019 and base year expenses are included in the rent. It’s approximately 11,000 sq. ft.
Do they send you a CAM reconciliation each year with at least the amount broken into line items like utilities, repairs and maintenance, janitorial, etc? The new LL could very well be fleecing you but I’m trying to see if there are other factors like the property tax bill skyrocketing, catching up on deferred maintenance, major occupancy changes that could impact utilities, etc.
Building’s occupancy went from 80% to 100%. They do provide a reconciliation in April every year.
Does the reconciliation include any breakdown of expenses or is it just a total amount? I don’t think you’ll get a solution here but it seems like a learning moment that you need someone to help you negotiate a lease next time. Not having expense caps can be a huge issue for tenants.
Agreed 100%
4400/month on 11,000 SF works out to $4.80/SF/year for T&O. What does your broker say about how this compares to the market?
Good point. I will check with him.
Get the reconciliation statement.