Do you own a business that has a need to lease space from a Landlord, or do you own a building which you look to rent out to prospective Tenants? If so, you will enjoy some of the insights I am about to share with you in this month’s issue. This world has a lot of things in it and I can’t think of anything that doesn’t involved Real Estate; it surrounds us everywhere. Unfortunately, they aren’t producing any more land, but it is quantifiable, which is one of the few “black & white” things associated with real estate. The Lease, very often, is NOT so “black & white” but rather an instrument carefully negotiated to address a bundle of rights between a relationship between a Landlord and a Tenant. Once this document is fully executed, it becomes the living “bible” when problems arise between the parties involved.

Most Leases are prepared once the business terms of a transaction are outlined and agreed to by both Tenant and Landlord. If you have ever been in a situation where the business terms seem to be agreed to between Landlord and Tenant, it is very interesting to see what materializes once a lease document is prepared. I can only begin to share with you the rollercoaster ride most people experience as this portion of the transaction evolves. Often, deals never come to fruition for a variety of reasons that I am not going to get into here, but I do want to address a few topics that I find intriguing and would like to share with you. This month I am going to focus on one of them that I find to be most interesting to ponder:

Common Area Maintenance (C.A.M.):

This is a very interesting topic to discuss when it comes to a lease because this seems to be a great profit center for Landlords to tap into not only because Tenants oversee many little nuances they uncover after a lease is executed but also because it seems to be a small piece of the puzzle to work through when negotiating a lease. Often Tenants are quoted C.A.M. charges when they inspect a property they are considering for selection, and they figure this into the overall monthly expenditure. What they do not realize is how critical this can be during the life of the relationship between Landlord and Tenant of a particular property. Tenants should spend a lot more time researching to uncover everything they need to know about common area as it relates to their building. Carefully examining this clause in their lease could prove to cost a lot of money for one party; which side of the coin do you fall on? Do you have a clear understanding of how much of your actual space is considered common area and what proportionate share of responsibility you share with the other tenant(s) co-inhabiting the building?

In a previous article, I mentioned that buildings in Manhattan actually grow each year, but really what happens is Landlords figure out how to add additional space that can be considered common area and they pass these additional charges back to the Tenant. Does your lease leave room for the Landlord to uncover additional expenses to burden you with? As you negotiate your lease, you should focus on this section carefully to make sure you cap your exposure to the nuances that can come up during the term of your lease. Another issue to consider with respect to C.A.M. charges has to do with maintenance of the building.

Have you ever had the argument that certain things should be the sole responsibility of the Landlord because it’s their building? I hear it all the time and there are certain situations where the Landlord should be responsible and there are certain situations that the Tenants should be responsible. Of course, at the end of the day, the Tenant pays for everything one way or another. For example, most Tenants can argue that if something happens to the roof or the structure of the building, the Landlord should be responsible and I would have to agree with this statement; if a Landlord cannot provide a roof and structure, why would someone continue paying a Landlord any rent? Of course, a Landlord can take the position that you are utilizing the building and should be responsible for its maintenance and contribute to the wear and tear of the building. Some leases are structured to have rental increases and this may or may not take into consideration the overhead which the Landlord bears to take care of their building and/or property. More typically, rent remains flat for a period of time plus Tenants are responsible for additional charges found in C.A.M. that have nothing to do with basic rent. Most leases that have clauses pertaining to C.A.M. charges take into consideration inflation as well as other costs Landlords bear to maintain their buildings. For example, Savoy landlords will create pools of money to put aside for “rainy” days when they may have to perform capital expenditures such as replacing a roof. These costs seem bearable and quite affordable when you bill a small portion each month to all your Tenants. When you first look at the property for consideration, do you considered the age of a building, the condition of the parking lot, the age and condition of the roof? How does the Landlord plan for major capital expenditures? These are questions that you need to ask yourself before you execute your “bible” which you will potentially be forced to adhere to for many years to come. These items will eventually need to be repaired and/or replaced and Tenants need to have a full understanding of what their obligations are going forward and often this is overlooked when negotiating a lease.

I have just briefly touched upon the surface of this topic and I will address others in future issues, but I know that in the interest of your time and mine, you will have to contact me if you would like to further this “conversation” on C.A.M. charges. Other issues that I am not going to get into right now but you will find useful to have knowledge of as you negotiate a lease include but are not limited to: janitorial, utilities, property management, other capital expenditures, landscaping, snow removal, security, HVAC etc.

Favorite Contact of the Month: DANIELLE’S PLACE- Full Service Hair Salon. For those of you who do not know this, I own a hair salon in New Milford, NJ and coming up on Sunday, June 8^th, we are sponsoring a Cut-A-Thon for the City of Hope Research Center. If you and/or your family do not have plans that day, I would personally appreciate the support. For full details, please visit www.danielles-place.com; it is going to be great fun for the entire family!!

Next Month’s Topic: The Art of Negotiating a Lease- Part II