Expert: Jim Avancena, CPM - 7/9/2008

Question
I have read through all of your Q&A's and you are providing a fabulous service!  Thank you.

I am a tenant in a commercial office space which I am currently subletting.  I had two  years remaining on my lease when I sold my business and moved out of the space.  My space was dark for 13 months until I finally was able to find a subtenant.  Throughout the entire time I continued to pay my rent, electricity, CAM and real estate taxes, and currently am heavily subsidizing my subtenant's payments to continue to meet my lease obligations which, thankfully, expire at the end of July.

While my space was dark -- i.e., totally empty and unoccupied, no computers or other equipment plugged in, etc., I noticed that my electricity charges were the same as and in some months even higher than my electricity charges were when the space was fully occupied (space is 6500 sq.ft., about 1/3 of the floor)  Under my lease, I am required to pay for "electricity consumed within the space."  It was clear to me that I was not being charged for electricity consumed within the space because, if that was in fact the case, the electricity charges would of course have been lower when the space was empty.

I raised this concern with the landlord who, of course, dismissed my complaint, stating that I was being charged my pro rata share of the electricity charges for the floor on which my office is located and that it was not possible to determine my personal electricity consumption because my office was not separately metered.

I persisted and was contacted by their lawyers.  We agreed to cut my electricity bills in half.  The lawyer thought that we were cutting the bills in half only for the 13 months of darkness.  I thought we were cutting the bills in half for the remainder of the lease term (to make up for prior years where I had not been billed according to my lease.  After the space was sublet, I paid half of the electricity bill and their lawyer threatened to sue me.

I became enraged and threatened to sue them.  The asset manager for the property then set up a meeting with me to discuss the issue.  I met with the asset manager who provided me with a notebook full of documents setting out and supporting the additional several thousand dollar credit that he was willing to give me.  I thanked him, of course, but also raised with him several base year errors that his company had made, an error that I have been trying to get corrected for some time (it is purely an admin error -- when I renewed my original lease for an additional lease term my base year was adjusted but the landlord's accounting department failed to update their books).  I also raised with the asset manager my concern, based on information that he had given me, that the CAM charges for electricity resulted in double billing of tenants for electricity.  Specifically, the property manager had explained to me that some tenants in the building have full service leases and those tenants are not billed separately for electricity -- that expense has already been accounted for in their base rent.  Knowing that the procedure for charging tenants for electricity that they use is to allocate a portion of the electricity bill for the floor to the tenants based on their pro rata share of the floor, I surmised that the unpaid portion of the electricity bill for a floor that included a full service tenant -- and was therefore not billed directly to that full service tenant -- defaulted into the CAM electricity charge to be paid for by the non-full service tenants as part of the monthly CAM expenses.  So -- I reasoned that the landlord was being twice for the same electricity -- once in the base rent of the full service tenant, and then again when the unpaid portion of the electricity bill was dumped into CAM and charged to the rest of the tenants.

The property manager went berserk -- he terminated the meeting abruptly, stormed out of the room, and contacted his lawyers who then contacted me.

In the meantime I had carefully all of the documents that the property manager had provided me which revealed a number of errors that involved not only my account but that also affected other tenants in the building, such as transposed numbers and missing data that caused at least one major commercial retail tenant to pay an excess real estate tax charge of over $60,000 in a single year because the billing worksheet left off that tenant's base year information. The lawyer who contacted me said to write down all of my questions including supporting evidence and he would be sure to get answers to all of my questions.  I submitted a 20-page document including citations to evidence from the documents that I had been provided.

I waited for several weeks during which time the lawyer informed me that "high muckety mucks" were looking into the issues that I had raised, that I had caused quite a stir up, etc.  Then, when the lawyer finally got answers to my questions, he refused to give me any answers or explanations -- instead he sent me a check for $30,000 and a revised    electricity invoice for 50 of the charges, along with an additional credit.  He refused to explain what the money was for, he did not ask me to sign any release or other document regarding confidentiality.  

He is refusing to provide me with the reconciliation for 2006 expenses -- as a result of my inquiries they had to redo the 2006 reconciliation.

Now -- finally -- here are my questions.

1.  In my lease there is a provision, in the section regarding operating expenses and real estate taxes, but specifically in a section on operating expenses, that operating expenses shall not include any increase in real estate taxes due to the sale of the building.  Our building was sold two years ago and my monthly real estate tax expense increased from about $150 per month to $1200 per month when the building was sold and the assessed value was increased as a result of the sale.

Their lawyer says that this just means that I won't be charged for the increase in real estate taxes as a result of the sale as part of operating costs -- instead, I will be charged the excess as real estate taxes.

It seems to me to be a foolish and wasteful effort to say no charge for the increased tax as operating costs but then turn around and charge it under another portion of the same section of the lease.  His support for his position is simply the fact that the exclusion appears in a section discussing operating costs.  What do you think about that?

2.  I am confident that there is not only double billing of electricity charges, but that I am also paying for electricity being provided to the parking garage.  My lease states that I do not have to pay for any expenses that relate to a tenant in particular as opposed to tenants in general, and the lease also notes elsewhere that the parking garage operator "is itself a tenant in the building."  We are not provided free or discounted parking, in fact we are not even guaranteed any parking possibility at all -- i.e., this is not a common benefit for tenants.  I took a tour of the meter room at the building and there is no separate meter for the parking garage -- just meters for each floor and a so-called house meter.  Accordingly, I believe that the parking garage electricity is being billed to tenants as CAM.  I can't prove this definitively without an audit, which I am not provided for in my lease.  I recognize that there may be civil law, contract law bases for some form of audit.  Is this in your opinion worth pursuing?

Finally, I know that other tenants in the building would benefit from reviewing the documents that the property manager gave me, specifically because these documents include a great amount of detail regarding the expenses that are included in CAM -- while the landlord only provides tenants with 3 categories of CAM expenses.  There are other points as well that tenants would like to know.  My question, then, is there anything that would prohibit me from sharing this info with other tenants?  For example, could the landlord successfully sue me for interfering with his contracts with these tenants? Could I get the other tenants to agree to defend me if I am sued for sharing the info with them? How would you handle this?  I presume that if we all banded together we could demand and pay for an audit.  My biggest concern however is the threat of a lawsuit by the landlord if I were to pursue -- or threaten to pursue -- this course of action.

I am a small woman-owned business and I am absolutely shocked and outraged by the position the landlord has taken that I am not entitled to any information or explanation concerning charges -- it seems quite unfair for them to be able to bill tenants without even the possibility of having their billing practices review or questioned.

Thanks -- my two most important issues are the exception for real estate tax increases and the threat of suit if I share documents/info.

You are an angel for wading through this and I thank you very much for any direction that you can give me.  Thanks.  Jan  

Answer
Jan-  
You are either a commercial real estate management prodigy or you have had someone coaching you on this issue.  I am impressed with your ability to pick the component matters apart into smaller pieces, and put them all back together into the larger issues. Your powers of analysis - especially if no one is assisting you - are excellent!

You must be located in New York City; that is usually where you find landlords that have the audacity to put together such a long string of self-serving, poorly thought-out responses to their tenants.

None of the actors on the management company side of this drama seems to take the time to comprehensively consider the various directions that this bungled electricity dispute can go.  That helps you and hurts you.  It helps you because it is allowing them to dig a deeper hole for themselves, but you aren't getting the compensation that you seek by the time your lease expires.

I have been in precisely this situation many times with other tenants.  Let me provide some comments regarding the various statements you have made in your correspondence and include some additional advice.

1.  If you want to resolve ALL of the errors and overcharges that appear to have been generated by your landlord, you will likely need to enlist some sophisticated assistance.  You may need to get an attorney that specializes in Landlord / Tenant Law, a CPA or management specialist that knows their way around property management bookkeeping and records, or perhaps a top level technician in property management operations - including HVAC and building equipment.

2. Be aware that if you demand an audit of the landlords books and records, you may be unknowingly painting yourself into an expensive battle that you don't need to fight.  Consider that your landlord may have many other of these kinds of questionable processes in place.  It may be that he is offering you a reasonable settlement so that you will go away because there are more serious problems to be discovered in his books that don't relate to you, but which he cannot afford for others to discover in an audit.  If your landlord provides you with a settlement, consider it carefully, it may be the best way to proceed.  Be guided accordingly.

3. Your landlord may or may not be double billing for electricity consumption in some situations.  Only an audit will confirm that for you.  It is a practice that is common in certain areas.  Get the evidence before making the claim.

4. What do I think about the real estate tax excess charges?  From the information you provided it seems that you are correct about the real estate tax overcharges.  The Landlord's lawyers version of the meaning of your real estate tax lease language - suggesting it simply describes how you will be billed singly as part of a special excess real estate tax bill - does not seem credible.  

5. Including the electrical consumption costs associated with the garage operations with the other electrical consumption expense for the building is a common practice; but you need evidence to determine if that is the case.  You may be 100% correct, but be certain.  The local utility company has the capability to tell you the meter numbers of every electrical meter installed on the property.  See if all the utility company meters in the meter room are actually ALL the meters the utility company has installed at the property.  All might not be in the meter room.  There may be another meter somewhere else on the property for the parking garage.

6. If your lease is completely silent on the question of your audit rights, you may actually have the ability to audit the landlord's bookkeeping materials.  You will need to discuss this with a local Landlord / Tenant law specialist.   During the last fifteen years, it has become common for landlords to include limiting language that creates so many conditions to a tenant performing an audit that most tenants are effectively blocked from auditing the landlords records.        

I am not an attorney, however you should confirm with your attorney that you will likely be granted the right to audit the landlords books and records if you file a lawsuit alleging fraud in the landlords billing practices and support your claim with enough evidence to convince the judge that your claim has merit.

7. It is your question about "banding together" with other tenants that suggests you have been coached by others in your undertaking.  Very few tenants have heard about "tortious interference" lawsuits; which is essentially what your question about "interfering with his (the landlords') contracts" is about.  You were probably told that the landlord might have grounds for such a lawsuit against you if you stir up trouble for him by trying to organize other building tenants to join in the action to challenge the additional rent (Operating expense and tax) bills sent to the other tenants.  This is a matter that you must discuss with local legal counsel.  Despite the many times I have faced the same threat, it has never gone any further than the threat.  However, the law on this matter in your area may be different that it is in other areas, so you will need to discuss this concern with your own counsel.

Organizing tenants is a very difficult task, and although unintended, most tenants don't support the group effort in the manner that they originally agreed to when their fervor was high.  It is possible that it has been done successfully under certain conditions, but avoid it.   Often, when money issues arise, especially when the decision must be made about accepting the amount of a landlord's settlement offer, it can become a nightmare.

Finally, you made a closing remark about being shocked and outraged that you are not "entitled to any information or explanation concerning charges".   You and your attorney may wish to review the "P.V. Properties vs. Combined" case from the Maryland Court of Special Appeals regarding a landlord's fiduciary duty to his tenant regarding operating cost, real estate tax, and other additional rent assessments.
       
You have gotten into a controversy that can quickly become a significant undertaking and consume massive amounts of your time and energy.   It is impressive to see a small woman-owned business seek what is fair from their landlord.  Bravo!   However, when dealing with any commercial landlord, heed John F. Kennedy's warning to Castro during the Cuban Missile Crisis:  "...remember that sometimes; he who rides the back of the tiger, will end up inside".

Good luck in your efforts and keep one eye open at all times.

- Jim