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"Costs" of Maintaining Common Areas: Adjoining Parcels ©

In many instances a landlord may have agreements in place to share the costs of certain expenses with other parcels owned by the landlord, an affiliate of the landlord, or unaffiliated landowners (e.g. outparcels not included in the definition of the “shopping center” or the “property” of which the tenant’s leased space is part of (“Main Parcel”), ring roads, access roads, retention ponds, etc.). In addition, there may be situations where adjoining parcels have been given the right to use or have access over the Main Parcel, but do not have a financial obligation to contribute toward the costs of maintaining the common areas that they use. Therefore, it is important for the tenant to:

1) Review the legal descriptions of the parcel in which its leased premises are part of;

2) Identify adjoining parcels and determine what portion of the Main Parcel is being used by adjoining parcels;

3) Receive and review all operating agreements, reciprocal cross access agreements, and other similar agreements that impact the use of the Main Parcel;

4) Secure and review the income portion of the landlord’s general ledger to determine what payments/reimbursements that the landlord may be receiving (often times, the landlord records these payments/reimbursements in income accounts rather than reducing the related expense accounts); and,

5) Calculate the portion of unreimbursed costs that should reduce the “costs” allocable to the tenant. These unidentified sources of revenue which reduce the actual costs incurred by the landlord to maintain the common areas could result in significant reductions in the tenant’s share of common area costs. Unfortunately, these overcharges are not typically ascertainable from the reconciliations or supporting documentation received by the tenant from the landlord.

Such a disagreement occurred in the case Valencia Town Center Venture, LP, v. VTC Business Center, LLC, (Unpublished, B235948, California Court of Appeal, Second District, Second Division, January 28, 2013). In this case the adjoining landowner attempted to make the argument that because the landowner passed all of its expenses onto its tenants it did not suffer any damages. The court was not persuaded and stated that if the landowner in fact passed all of the charges onto its tenants, the tenants would be entitled to a refund based on the contributions from the adjoining owner.

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