Managing Occupancy Costs Effectively ©
THE MUTUAL DEPENDENCY OF LEASE NEGOTIATIONS, LEASE ADMINISTRATION AND OCCUPANCY COST MANAGEMENT ©
In order to effectively manage the property related bills that you receive from your landlords, there must be a coordination of efforts between the professionals responsible for lease negotiation, lease administration, and processing of property related bills. The people ultimately responsible for paying property related bills should be part of the lease negotiation process to ensure that there is a clear understanding as to what charges will be passed through to the tenant. The sharing of expertise between the various professionals can help avoid significant property expenditure problems in the future. Consider the following:
Lease Negotiation Process:
Attempt to use tenant drafted CAM language.
Clearly identify the charges that will be billable to the tenant. Avoid overly broad language such as “including, but not limited to”.
Clearly identify exclusions from CAM. It is helpful to include examples in the lease.
Provide that the landlord must reconcile charges by a certain date and provide a detailed billing consistent with the chart of accounts maintained by the landlord for accounting purposes. This will help facilitate a review of the bills.
The landlord should be required to provide supporting documentation, as requested.
Avoid language that would limit tenant audit rights. The language should specify where all supporting documentation would be provided for review and the amount of time following receipt of notice that landlord must provide the documentation.
Audit provisions should provide for a reimbursement of audit costs incurred by tenant and for interest on all overcharges.
Prior to finalizing the lease, a sample bill should be prepared by the lease administrator and reviewed with the professional negotiating the lease. This will help identify issues that may not have been addressed or that are not clearly explained in the lease.
When abstracting a lease, avoid summarizing the common areas maintenance and real estate tax clauses with language like “pro-rata CAM and RET”. Each lease and property is unique.
Highlight exclusions, with examples, while the lease is fresh in everyone’s mind.
Prepare a sample invoice that you might expect to receive, detailing exclusions and limitations and the impact on your bill. This will serve as a useful tool when a bill is received, reducing the time it will take to properly process the invoice.
C. Lease Administration:
Maintain a copy of the sample invoice prepared when the lease was abstracted.
Detail review the first reconciliation received from the landlord. This will allow you to identify potential issues early on. Disputes and errors are much easier to resolve before they are compounded by multiple years.
Processing of CAM Bills:
Set the tone with the landlord from the start that you will require the landlord to comply with the provisions of the lease.
Require that all supporting documentation must be received before a bill will be processed for payment.
Communicate with the landlord in a timely manner and insist that the landlord respond timely.
CAM Cost Solutions can assist you in establishing effective occupancy cost controls. Feel free to contact Ed Weberman at (248) 538-2500.