Expert: Jim Avancena, CPM - 12/29/2009

Question
My employer purchased several properties in Texas about 5 years ago. Almost all of these properties had leases that allowed the landlord to charge the tenant for a portion of the operating expenses for that year.

Many of the leases were worded similar to the following:

"Lessee shall pay monthly additional rental consisting of one twelfth (1/12) of the difference between the "Base Year" actual operating expense costs and the upcoming year's estimated operating expense costs allocated to the Leased Premises. For purposes of this Lease Agreement the "Base Year" shall be the calendar year of ____. This additional rent allocation shall be based on the proportion of the Leased Premises' net rentable
area to the Building's total net rentable area. Lessee's proportionate share for purposes defined herein shall be ___% of the total estimated operating expense increase."

Many of our properties included the operating expenses for previous years, however some did not. Either the company outright refused to give that information to us or they never responded to our requests for this information.

Is there anything we can do to charge our tenants for CAM charges even if we don't have any data on the operating expenses for their respective base years or do we simply have to wait until we sign new leases?

I'd appreciate your help! Thanks.

Answer
Owen-

This may be settled by the existing Landlord & Tenant law in each jurisdiction where your tenants lease premises from you.  Let me explain.

It is possible to reconstruct a significant portion of each calendar year's CAM expense because many of the component line items CAM expenses remain in the public domain for years afterwards; that is, expenses such as utility bills for lighting the parking lot, germane tax charges, etc.  Unfortunately, if you are unable to accurately determine the total AGGREGATE operating expenses for previous years, the integrity of your CAM charges will be questionable.   As you know, the lower the base year expenses - regardless of if the expenses are low because the landlord has no records to go by or if the landlord has an artificially low total of CAM expenses in an effort to knowingly defraud his tenant's for additional rent - the greater the financial benefit to the Landlord.  Odds are you will be able to reconstruct more complete (that is, higher, larger) CAM expense records for recent years versus the earlier Base Years.  Hence, your tenant's will again be chronologically disadvantaged because the later comparison year CAM totals will likely create an artificially greater basis for computing each tenant's pro-rata share.        

Were your tenant or tenants to challenge your CAM assessment figures and you were unable to produce verifiable supporting information, a court might have an extremely negative attitude toward your business procedures; perhaps even consider them criminal.   However, if you tell your tenants that you cannot verify the CAM expenses, they will not reimburse you.  

Furthermore, in many areas in the United States, there is landlord Tenant law that limits the landlord's rights to charge tenants for increased CAM costs in arrears after a certain statutory period.  You should have your attorney check the applicable Landlord Tenant provisions that impact your predicament in each jurisdiction.  

Although I am not an attorney, it seems that your attorney should have some way to establish that the previous property owners have a duty to provide you with the records you require or they should be liable for your inability to collect the additional rent.

I am sorry that I cannot be of better assistance in this regard.  You may lose a significant amount of additional rent from failing to collect your CAM fees.

Good luck,

Jim