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Commercial Real Estate
In today's commercial real estate business, too many existing tenants are being overcharged for a myriad of additional rent items, ie. operating expense escalations, utilities, square footage add-on factors etc. The majority of these overcharges are the result of billing miscalculations, inappropriate operating expense escalation charges, pro-landlord lease language and a lack of adequate verification and property management knowledge on the part of the tenant. Following are three examples of the most prevalent and easiest billing abuses to recognize and correct: 1) Operating expense escalations - almost every lease contains an operating expense escalation clause which allows the landlord to bill the tenant for increases in expenses to operate the building over the expenses incurred to operate the building in an agreed to base year. You must always verify the expenses by category. Never accept the billing summary. Every line item is important. Many landlords will attempt to pass through capital and corporate charges in the individual accounts, ie. new motors, pumps, carpets, corporate engineering fees etc. You will only be able to find them if you check the landlord's monthly statements.
2) Overtime a/c and heating charges - Many landlords will bill the tenant for overtime a/c and heating charges without ever providing adequate backup for the bill. ex. The a/c rate is $35.00 per hour x 4 hours = $140.00. The tenant must make the landlord verify the $35.00. In most buildings, the electric consumed by the equipment is the highest component of the $35.00. Many landlords use an electric unit cost that is too high. The landlord will use the building's average cost per kwhr. in the hourly calculation. example- the landlord divides the dollar amount of the building's monthly electric bill by the total kwhrs. consumed and uses that rate as the cost of each kwhr. That is wrong.The monthly electric bill contains a demand charge which can account for up to 40% of the charge. There is no demand charge after normal operating hours. The building usually incurs a demand charge during the peak usage hours- 10:a.m. - 3:00p.m. The hourly electric charge should be for usage only. Therefore, the electric portion of the hourly rate used in the overtime a/c charge can be 40% too high. Always verify the hourly calculation and make sure that it does not include the demand charge.
3) Subsidizing other tenants operations - Many buildings will have one or two major tenants. Many landlords will give the major tenants various operating extras, ie. extended hours of operation, additional security, additional cleaning services etc. The additional expenses associated with these extras will get lost in the escalation billings/operating expenses, and will be paid for by all the tenants. There are easy ways to find out if this is happening: a) check the after hours sign in sheets/printouts. You will see if a tenant always has people in the building after hours, indicative of an extra shift. b) Ask to see the after hours utility meter readings. If they are high, it means that either equipment is running for a tenant or that the building is not being run efficiently. In either case you should not be paying for these expenses.
In closing, the key is to verify every bill that you receive from the landlord. Verification plus an understanding of how the building operates, will keep the operating expenses down and save you money.
Well, that is my opinion; what's yours? You can reach me at ed@tenantadvocate.com, or call me at 1-800-699-4901, or visit my website at http://www.tenantadvocate.com
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