Expert: Jim Avancena, CPM - 4/9/2011

Question
Hello Jim,

Have enjoyed reading your posts.  I am dealing with a situation and I was wondering if you could give me your thoughts on?  I am relatively new to commercial real estate dealings, so please excuse me if my syntax is not correct.

I negotiated a lease (using an attorney) with a rather large property management company. The lease is 37 pages of fine print, if you get my drift. The lease negotiation took five weeks. I could not believe how long it took.  During the negotiations we agree upon (and used) specific figures for rent and CAM and I used these figures as a basis to decide to move ahead and lease the property. Obviously the rent is what it is, but during the negotiations they indicated that the CAMs were good estimates.  It is listed as Initial Estimate in the lease.

I signed the lease first part of 2010, and my outside opening date was in late May. I proceeded to pay my rent (including all CAM charges) and everything was fine, until November when they sent out the 2011 Property Operating Expense Budget.

This indicated a 75% increase in the CAM charge. To say that I was a little shocked is an understatement.

Given that I am in a center with other tenants, my first thought was to find out if all the other tenants had seen their CAMs increase dramatically. I walked down to another retail space in the center and spoke with another owner, who is a friend. He indicated that his CAM had not increased at all from 2010 to 2011.

So either I am being singled out and treated unfairly, or they were not negotiating from a position of full disclosure when we negotiated the lease, both of which seem be legal to me. Can you give me your thoughts on this?

Secondly, in January I received the 2010 Year in Reconciliations. This indicated that the property management company was billing me a substantial amount for underpaid CAM for 2010.  When looking at the amount I had already paid in 2010 in relation to the additional amount they were now requesting, it was an increase of 77%. Obviously once again shocked.

So I walked down to my friend’s retail space and asked him if he was being charged for underpaid CAM for 2010. He actually was getting a small credit back from 2010 (from overpayment). Once again it appears either I am being singled out and treated unfairly or they were not negotiating from a position of full disclosure when we negotiated the lease. Can you give me your thoughts on this one as well?

Thank you for your help,

Pace

Answer
Pace:

Something is wrong with this picture.  

Your problem could be found in so many areas from just a few words found in the fine print of your lease that make these horrific assessments legally binding upon you, through fraud on the landlord or management company's behalf.  Being billed for previously under-billed CAM or operating expenses is very often a tip-off that you should check the basis of the CAM charges for their accuracy.   Don't try to do this yourself, your landlord has far more knowledge than you do about the finer points of the bookkeeping, accounting principles, standardized property management procedures and the billing process.   The mismatch in knowledge give it the ability to have you thanking your landlord for its integrity after spinning its version of the reasonableness of the assessments, when you are, in fact, being hosed.  

If your attorney is highly skilled in "Landlord and Tenant" law, you might ask him to evaluate if you have any basis for challenging the charges based as a "Material Mistake of Fact", "Breach of Fiduciary Duty", or other related legal basis, especially based on the conflict between the landlord's initial indications of the CAM costs.    Your attorney can tell you if you have a legal remedy.

You may discover where the cause of this nightmare may be found by making a word by word comparison of your other retail friends lease.    Sometimes just a few words that differ in a lease text can give the landlord the opportunity to bill you for dramatically more expense than another tenant's seemingly similar lease.

Lastly, do not hire an accountant or CPA to review this situation on your behalf unless it is knowledgeable in this specific process of property management.  

Send me a follow-up question if you have any further questions about your predicament.

Good luck and good hunting,

- Jim