CHOKING ON HIDDEN CHARGES?
WHAT SHOULD YOU DO?
Is your common area maintenance expense (CAM) taking off like an
unguided missile? Does the monthly
statement for CAM provided by your landlord
set forth any detail supporting the charges? Does your landlord provide you
with a monthly statement for CAM? Do you have any understanding whatsoever of what
your CAM includes?
Most purchasers of coin laundries do not spend much
time reading the fine print of a lease.
It is difficult for
a lawyer, let alone a lay person, to keep from dosing off while
you read the description in a lease of common area maintenance expense. Every phrase in that section of the lease,
however, is an opportunity for the
landlord to pass along a charge to the tenant.
So drink strong
coffee, turn off the television, send the wife and the kids to
the movies, and, if necessary, sit near
an open refrigerator door, while you read this portion of the lease!
The most significant economic cost in a lease to a
tenant, aside from base rent, is that portion of the lease requiring a payment
of operating expenses and taxes.
Landlords are very attentive to recovering as much as reasonably
possible, and sometimes as much as unreasonably possible, of costs to maintain
and repair their building and related common areas. These expenses most typically
include the following:
and repairing common areas such as parking lots
the building structure, heating and air conditioning systems
Has the landlord hired his
out-of-work brother-in-law to water the common area landscaping at $900 per
month? Does the landlord actually spend
money on capital improvements and parking lot maintenance, or does he simply,
year-in and year- out, add to the reserve?
What should you do?
Leases frequently contain
audit provisions under which a tenant may review and, if appropriate, contest CAM. Audit provisions found in
leases frequently provide, however, that after the audit is concluded, the
tenant shall pay all costs unless the size of the error found exceeds a
specified threshold, such as 5%.
Determine whether the threshold error sum is calculated as a percentage
of the tenant’s share of CAM or as a percentage of total CAM for the building or
shopping center. Calculate the dollar
amount of the error you must demonstrate in order to recover the cost of the
audit. Determine the target areas for review. If you feel comfortable with your chances,
request the audit.
If you are contemplating the
purchase of a coin laundry, a review of past CAM it is essential to ensure
future emotional and financial tranquility.
In your review of the proposed lease, be sure that an audit clause is
included. Many commercial printed forms
do not include such a provision. Absent
an audit clause in the lease, you will probably not have any enforceable right
to an audit without initiating litigation in order to obtain access to the
landlord’s records, since there does not appear to be any authority providing a
tenant with an implied right to audit the landlord’s books and records.
The moral of the story? If you wish to avoid choking on the
consequences of signing a lease that you don’t understand, there is no
substitute for retaining an attorney to assist in carefully and slowly
digesting the document for you!
[This column is intended to provide general information only and
is not intended to provide specific legal advice; if you have a
specific question regarding the law, you should contact an
attorney of your choice. Suggestions for topics to be discussed
in this column are welcome.]
Reprinted from The Journal
Myles M. Mattenson © 2007