Commercial Real Estate Investment/CPI
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Question
Sorry Jim,
In my email to you I mentioned using the numbers starting in July the prior year. I know that's not right, I intended to say August of the prior year to July of the current year.
Gary
Gary-
OK. I was trying to explain that if the lease requires that the rent shall increase on the first day of any specific month in accordance with the Consumer Price Index, that lease will usually stipulate that the CPI increase calculation will utilize the most recently published CPI index available at the time the notice of the rent increase is sent. The "most recently published CPI index" available every month would be the index published on the 25th day of the month before.
Since the lease states that the tenant must begin paying the new adjusted rent on the first of a specific month, the landlord must tell the tenant what the amount of new monthly rent payment is BEFORE the first of that month so the tenant can write the new rent check, and bring or deliver it to the landlord's office by no later than the 5th of the month. If the rent payment is not in the landlords' hand by the 5th of the month, the tenant will likely be assessed a late payment fee.
Since the Bureau of Labor Statistics does not publish the index for each specific month until the 25th day of that month, the practice of utilizing the CPI published for the month previous to that month in the CPI rent adjustment calculation was established.
Buy adopting this procedure, it kept the landlord from having to estimate the new increased rent and sending a letter telling the tenant what to pay for the rent that upcoming month, and then writing a second notice to the tenant late in the first month saying that the CPI for the month had just been published on the 25th and that this second notice was to adjust for the estimated rent the tenant paid back on the first of the month, and, the total monthly rent payment due for the 2nd through the 12th month of rent later that lease year would be $ X, AND to please also send a check for the difference between what you paid in our estimated rent notice for the 1st month and the amount of the new actual monthly rent.
Confusing isn't it? It brings to mind the confusion in the old Abbott and Costello "Whose On First" comedy sketch.
Good luck.
- Jim
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Answers by Expert:
Jim Avancena, CPM
Expertise
Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.
Experience
Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.
Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.
Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".
Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.
Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.
Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.
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