Expert: Jim Avancena, CPM - 2/10/2009

Question
I have a Subway restaurant. We purchased the store last year and have not been able to turn a profit due to our rising CAM costs, our total rent including CAM is $6,600.00 because we sublease the store from Subway corporate, is there a way to get out of the lease? There is a buyout option, but it is 40k plus we lose our security deposit, and have to return the store in a broom clean fashion. Taxes on the building were $58,000 last year, we make up 22% of the building. Please help!!!

Answer
Joe-

I do not have enough information to know where to start to help you in this situation.  Could you provide me with more details such as:

1.  What is your base rent psf?
2.  What is your CAM amount each
   month or annually? How much of
   the $6,600 is rent and how much
   is CAM?
3.  How much more is CAM this year
   than the year(s) before?
4.  If you have 22% of the project,
   what is occupying the other 78%?
5.  How much space do you occupy based
   on your lease?  Does that total of
   square feet include added Common
   Area space too?
6.  Has your landlord provided you with
   a detailed worksheet that lists
   all of the CAM expenses by category
   and shows the amount of expense per
   category?  (They should have this
   readily available if they use standard
   property management accounting software,
   although they may say you are not
   entitled to this "proprietary"
   information.  They may also call it
   their "Chart of Accounts" for expenses.)
7.  Does their charge for CAM include an
   "administrative fee" that they pay to
   themselves?  Does your lease say that
   the landlord may pay themselves an
   administrative fee?
8.  How does your CAM charge compare to
   other tenant CAM charges.

Your lease may or may not allow you to audit the landlords books and records regarding your CAM expense charges. Check to see if it explicitly stipulates that you can.

There are literally hundreds of reasons why CAM expenses can be high or low, valid or bogus.  I know most of them, but even lay persons can identify bogus charges on some occasions.  Remember, it could be that CAM costs are just bona fide expensive this year.  The single category that can explode the amount of CAM costs in a short period of time (like over a one year term)is including the cost of capital improvements or expenses.  In some leases this is acceptable, and in most, it is not.  Have you noticed that the landlord has made any major repairs to the property over the last year or two? For example, has the entire parking lot been re-surfaced, new roofing put on, replaced parking lot light posts, put up a large new marquee sign out on the street for the entire retail center, built new retaining walls, replaced water and sewer lines,  
etc., etc.  These kinds of expenses could build up significant CAM costs in a short period.

There is a terrible problem with fraudulent CAM billings by predatory landlords taking advantage of tenants.  It is left up to innocent business people to investigate because no one else wants to challenge the process.

It may help to talk with other tenants in your project to determine if they have similar charges.

Please provide me with more information and I will tell you what I suggest based on your response.

Getting out of your lease with Subway might be tough unless you have grounds for doing so.  Your agreement with Subway may address if it is there responsibility to challenge costly CAM charges or other questionable invoices.  They should be willing to help you in this effort because if the CAM charges are too high, they will have the same problem again with the next sublessee in the store.  They will however want to know some sound basis for you to question the CAM charges.

Tell me more if I can be of help.

Good luck.

-Jim