Expert: Phil Nicols - 6/23/2010

Question
Can you please confirm if Consulting fee invoices paid for obtaining a Certificate of Occupancy for a commerical property could be considered recapturable expenses to include in an operating escalation billing to the tenants?

please advise - thanks

Answer
Sheila

good question.

Commercial property leases are not governed by laws such as Landlord & Tenant Act, therefore it relies on the strength of the lease.

Most commercial leases include dialogue permitting the landlord to run the property in a good landlord like manner and pass those costs onto the tenant.

Without reading your lease theres no way of knowing for sure but I can tell you its common in most commercial leases.

If you are the tenant complaining about the extra cost, there is no court in the land that I know of that would prohibit you from arguing about this cost (or any other additional rent cost for that matter).

if you are paying it, you have the right to know what the cost is for.

there is also the argument about how these costs are calculated..... for instance if landlord replaces the roof, like all the shingles for instance (or asphalt etc) this could be deemed to be a "capital expense" - a betterment to the building, same as an addiaion to the building would belooked at. The tenant should not have to pick up this sort of expence.

But what if the lanldord only replaces a few square yards of shingles? then its a "repair" and could be added to the ongoing costs of the property right?

But even if they do, there should be wording in teh lease that explains how these costs are supposed to be delt with - for instance, you might argue that such large expense should not be bore by the tenants of the property all at once, like within that year - rather, large costs should be spread over a 5 year term for instance.

What if you get hit with these expenses suring your tenancy, then you dont renew, and leave, but the new tenant coming in gets teh benfeit of your incrased cost base.

So there you have arguments for both sides. Now you have to deceide if its worth arguing.

are you a single tenant of a building and the consulting costs were exorbitant? worth fighting against? or is it another small cost they are adding? one time cost etc? this is what you have to weigh now.

in any case, rent as well as additional rent (commonly known as Taxes Maintenance and Insurance (TMI) or Common Area Maintenance  (CAM) are always tax deductible.

hope that helps.

best, Phil