written by Chris Norwood, NAI Norwood Group
The New Year’s parties are over. The
champagne flutes and funky glasses are packed away for another 12 months. It is
that time of year for resolutions and CAM review.
It is time to break out the lease and find
out who is responsible for increases in expenses. Common Area Maintenance (CAM)
and Taxes are expenses that are paid for by a tenant in a triple net lease.
When the Real Estate Taxes or the CAM go up (or down in some cases) the tenant
is responsible. Even in some gross or modified gross leases the tenant still
has to pay for the overage charges if the expenses go up.
Typically as a tenant pays their rent on a
triple net basis, the monies that get paid in rarely equal the actual expenses.
Snow falls differently than budgeted, there is more landscaping that takes
place, or the taxes went up. At the beginning of the new year the tenant should
received a statement of what they paid in and what the new budget for the
following year is. For triple net and some gross leases the tenant will be
responsible for this increase marching forward. On most triple net leases the
tenants will also have to look back over the previous year and come out of
pocket for any difference in the expenses in one stroke.
If you are a landlord or a tenant, take the
new year to review these clauses of your lease. In addition be on the lookout
for expense “stops”. A stop is when one of the parties has a cap on their
exposure to increases. For example there may be a tenant “stop” of a 3%
increase annually on real estate taxes. Therefore a tenant shall pay for the
first 3% increase but then the landlord picks up the balance. You should look
into these details on your lease to see what your exposure is.
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