Expert: Jim Avancena, CPM - 1/26/2009

Question
QUESTION: My previous office of 3 years with the same landlord was $3 per sq. ft. I was
asked to change offices which I did in 11/08. I was told that the new office
square footage amount would remain the same at $3 st, however .56 cents
per sq.ft. was added for the CAM charge bringing the new total per sf to
$3.56 (previously there was not CAM charge)

The the office is 382 sq ft. x 3.56 = $1360. The lease is just now ready to be
signed by me and they are asking for $1431. I asked where the additional
$70 came from. They are saying that the additional $70 is for 20 sq feet
which has been added on to cover CAM charges. Originally I was told that my
rent would stay the same at $3 per sq. ft. but they would be adding .56 on to
each sq. foot. Now it seems that they have done both: .56 more per sf and
and additional 20 sf. Our agreement for me to move was verbal and they have
taken 3 months to get a lease to me. It does not sound right or fair to me. Do
I just need to accept the situation as I am now settled into the office? Thank
you for your time and expertise.

ANSWER: Gena -
No.  Do not accept what they are doing if it isn't what they told you it would be.  There are some things I need to know.

You said: "I was asked to change offices".  Was your lease expiring at the time or did you have some term left on your lease and you were accommodating them in spite of your right to stay in the space until the lease expired?

If your lease did not have what is called a "relocation clause" that allows the landlord to move you to other space even if your lease had not expired, then you are doing them a favor and they had better give you the deal they told you they would give you.  They are jerks if they are trying to stick you for twenty square feet more than you had before.

If your CAM expense base figure per square foot is higher, that is better for you. However I am concerned that there may be some miscommunication here over rent rate per square foot and CAM rate per square foot.

If you were told the rent would be $3.00/square foot as your rental rate, then that is what you should pay, no more.  

Note however, that the landlord will probably say that you do not have to accept the economic terms they are suggesting now in your lease, however, if you don't, you will have to move out.  In that case it is one of those "Gotcha" situations.

Send me a follow-up question if i didn't understand your remarks the way you intended them.

Good luck.

-Jim

---------- FOLLOW-UP ----------

QUESTION: First, thank you for helping me with this, I appreciate it. I'm afraid that it will inevitably be one of those "Gotcha" situations that you mentioned. None the less, I feel they should know that I see what they're doing, and I would like to hear their explanation. I'm not prepared to move, so I will have to pay up.

To answer you question. The lease in the previous office had expired 6 months prior. They had been planning to renovate the building, and it took them awhile to get to it. I moved to the floor below which was renovated first, in order for all of us on the upper floor to move.

Here is what I would like to clarify. You said "if your CAM expense base figure per square foot is higher, that is better for you."  I did not have a CAM charge on the previous lease. The new office is 382 square feet. They are adding a CAM charge of .56 cents per square foot. So, the total should be $1360. They are now stating that they are adding 20 square feet on the the 382 for a CAM charge for a total of  402 square feet and charging me $3.56 per square feet = $1431. They continue to maintain that I am still paying the same square footage amount as my previous studio minus the CAM, which was $3 sq.ft. I hope I'm communicating that clearly to you. Do you have a recommendation as to how I pose the situation to them?

Once again, thanks a million. Gena

Answer
Gena-
I understand so much more now!  Yet I still am not certain of the new lease terms.

OK, let me try this.  

1.) You say that "They are "adding" a CAM charge of .56 cents per square foot"  Does this mean that they are simply charging you $.56 cents more per square foot ("$.56/sf") to pay for "CAM charges" and that you didn't have this provision in your previous lease?  Yes?  That is what is seems like you are saying. I won't go into what I thought it meant when I said it was better - which was altogether different - it would be too confusing.

A true CAM charge is an added cost that you pay to cover your proportionate share of the total overall cost for keeping the COMMON AREAS; that is all the parts of the building that are outside the entrance door of all the suites of the building like the hallways and lobbies, clean and maintained.  That is, the cost of vacuuming the carpet, fixing dents in the walls, cleaning the elevator cabs, the glass in the ground floor lobby etc. in the building.  Before I assume the landlord did the same cleaning but he simply didn't charge extra for it - it was included in the rental rate of $3.00 per square foot.  At least that is how the additional $.56 cents is supposed to be used.  

and...

2.)You add: "They are now stating that they are adding 20 square feet on the 382 for a CAM charge for a total of 402 square feet and charging me $3.56 per square foot = $1,431".  I believe I know what you meant.  The Twenty (20) added square feet onto the 382 is not also a "CAM" charge, it is what is known as a "COMMON AREA FACTOR" of five percent (5%).  Common Area Maintenance (CAM) and Common Area Factor sound very similar, and both deal with the common area, but they are very different things.

Your landlord is renovating your building floor by floor so that they can charge a higher rent to lease office space in it in the future.  It is not uncommon for a landlord to "re-measure" the building when they renovate a building in order to have more space to lease and charge each tenant more rent.  In your case, the landlord has decided to increase your square footage by approximately five percent (5%); i.e.: 382 sq.ft. x 1.052 = 402 sq.ft..  You probably don't actually have twenty more square feet inside of your office to use, your landlord has simply decided to institute a very common technique that landlord's use to artificially increase the amount of rent they can collect for the building, without it actually getting any larger.  

The 382 square feet you had listed in your last lease was probably the actual amount of square feet you had inside of the door to your office to use.  That is called a "Net" measurement.  The landlord now a has a new leasing plan for the building that will develop more square footage total for each tenant space that includes what is called a "core factor" or "common area factor".  

The landlord will explain that since you use the common hallway outside of your door that goes to the elevator, he thinks that it is only fair to charge you for your proportionate share of that hallway space and charge the other tenants on your floor for their proportionate share of the hallway space also.  It appears that your proportionate share of the hallway area - the hallway area also being known of as the "COMMON AREA"(because it is an area used in common with everyone else in the building) - is twenty (20) square feet.  Since that is about five percent (5%) more square feet, that is your proportionate share or "PRO-RATA SHARE" of the Common Area (NOT a 5% common area maintenance charge.).

This is actually a very common practice in the commercial real estate industry, and when a COMMON AREA FACTOR (in your case 5%)is added on to the actual net square feet in your office, your lease is now said to be measured on a GROSS Square Footage Measurement.

I hope you understand this fairly complicated explanation.  Your building has gone from Net Measurements of office space to GROSS Measurements.  Their is actually no more square feet in the building, but this change in terminology allows the landlord to call it more feet and collect more rent.  

Now, back to your new lease.

Perhaps when you say "They continue to maintain that I am still paying the same square footage amount as my previous studio minus the CAM..." they mean that if you exclude BOTH the additional CAM charge built into your rental rate of $.57/sf PLUS the extra rental for the COMMON AREA FACTOR of 5%, that then you are paying the same as before.  That statement would then be accurate.

I would pose your concern to them like this:

   "You lead me to believe that when I moved I would be paying the same rent as I was in my old suite.   Remember, I didn't ask to move, YOU asked ME.   I was just helping you out.   What you have done is give me the same actual sized office space,  but you have added other charges with new names: $213.92 per month for a Common Area Maintenance fee,  and $71.40 per month for my proportionate share of the Common Area;  in reality, your new charges make my total aggregate rental cost increase by twenty-five percent (25%)!    25%!   25%!   That is not "The Same Rent" like you said before I moved!  Heck, the economy is imploding and everyone is struggling to pay their rent, and you think you are going to increase my rent by 25%!   That is extremely unreasonable, and I cannot afford it.   Where else in this city are landlords increasing their rental charges by 25%?  Where?   In a few more months owners will be thrilled to have ANY tenants in their buildings paying rent!  You may think you can charge people this rate now, but I assure you that you will be BEGGING FOR TENANTS later in this recession......I would like to keep my office in this building - it looks so much nicer now with the renovation - but I cannot afford to pay a 25% increase."  

After you say all of the above comments you better have an idea what you will pay them because that is going to be the next question they ask.  You will have to semse how you think they will react to your comments.   Ah, you go ahead and say what you think if fair - but I really believe my comments about the recession are 100% accurate.  

If the building is full except for your space you should probably be flexible on the rental rate because it may be that $3.57 is a low fair market rental rate for the space.  If there are several vacancies, perhaps suggest a modest rent increase.  If the building has a lot of vacant spaces and you think their asking rental rate is high, tell them you will only pay what you were paying before.  But have a number in mind to tell them.

Finally, why do you refer to your office space as a "studio", was the building formerly a hotel or apartment house?

Good luck, and let me know your results.

-Jim