Commercial Real Estate Investment/Management fee

Advertisement


Question
QUESTION: I liked your way of explaining things. We have an issue with our landlord. He wants me to pay almost $1000.00 CAM every month. The big amount goes to management fee and they put 5%. How do I know if it is legal that he charges us this fee. I did find it in the lease contract stating "Lessor has the excluive control and managemenet of the common area". We use to pay him $750.00 a month, now his property management sent us a letter stating that we need to pay almost $3000.00 extra. Do we have a legal statement saying that he has not right to charge us this fee. Your answer is highly appreciated

ANSWER: Shima:

Five percent (5%) is not necessarily excessive for a management fee.   There are a few related questions however.

First, Five Percent of what?   Five percent of the total amount of CAM expenses?  You need to see a break down of the the combined CAM charges to know if the 5% is being calculated appropriately.

Or is it intended to be Five Percent of the monthly rent that you pay? ($750 x 5% = $ 37.50 / month).

You have one or two paragraphs in your lease that state in precise detail exactly how the CAM expenses are calculated.   Read that language very carefully and be certain that the CAM charges are being computed as stated.

Simply put, you need to have your landlord supply you with the supporting calculations that explain how the landlord calculated the management fee it is assessing to you.

There is much more information that I would need to know if the "almost $1,000 CAM every month" is appropriate.  I find it very hard to believe that the monthly rent is/was $750 per month and the monthly CAM charges exceed the base rental amount.

Let me know of any additional details that you receive.

Good luck,

-Jim   

---------- FOLLOW-UP ----------

QUESTION: Our rent is $2250.00 and he wants us to pay $1000.00 CAM,so they take 5% of the revenue. we have a new tenant now who has overflow of customers that they take all the parking spots and we are losing business as our customers don't find a spot to park their cars though our lease contract says "we have 3 unreserved spots in front of our store, we talked to the landlord and he's not willing to do anything.

Answer
Shima:

Sorry, "unreserved" means that the landlord provides parking spaces but any customers for any of the stores can use them at any time.   This is a "First come, First Served" basis parking, which is very common.   Your lease would need to stipulate "3 Reserved" parking spaces to guarantee you three (3) spaces specifically for your customers use only.  Landlords rarely provide reserved spaces because that would require them to have a parking attendant stationed around those reserved spaces all the time to assure that only customers for that specific tenant used the reserved spaces.

Secondly, I need another clarification from you.   Please be precise and tell me exactly what "revenue" you are referring to in your first sentence.   5% of the total revenue the landlord collects from all the tenants combined each month, each year, or what?   Or are you referring to some sort of percentage rent provision in your particular lease?   It is common for a landlord to pay a percentage management fee based on the total of CAM expense.  Please let me know.    

If you ask, your landlord should provide you (and perhaps you should have an accountant helping you)with detailed bookkeeping records that show the breakdown of how it arrived at charging you the $1,000 for CAM charges.   I repeat, your lease should have very specific text that defines in great detail what is fairly included in your CAM charges and how that amount is computed. Each word of the CAM text is often crucial to correctly calculating CAM expenses.

It is unusual for the CAM charge to come out to exactly $1,000/ month.  Sometimes a lease will stipulate a round amount because it is easy for the landlord to remember.  Again, check your lease text regarding CAM charges, and you may discover that the CAM provisions define a process where your landlord estimates how much you are likely to owe for CAM charges for the year - based on the prior year total of CAM charges - and the landlord will; at the end of the year after you have paid the total of $12,000 (12 months x  $1,000 per month = $12,000)for CAM charges, compare what the "ACTUAL" total CAM charges were for the year and either reimburse you for any overage that you paid, apply any overage as a credit to your CAM charges for the next coming year, or, (and this is unlikely), bill you for even more for CAM because the total CAM charges exceeded the landlords estimates of CAM expense.  

It is not unusual for landlord's to overcharge tenants for CAM fees, but it is just as common for tenants NOT to pay much attention the the CAM provisions stipulated in their lease when they initially negotiate their lease, and the landlord's "Standard Form Lease" contains - in the "fine print", a CAM provision that requires the tenant to pay a high amount for CAM charges.   I hope this was not what happened in your case.

Very few tenants have the specialized knowledge necessary to determine if - based on the landlord's accounting/bookkeeping records - they have been assessed appropriately.  You should have someone that understands CAM fees and how they are determined review the details of your lease, the "supporting" documents that the landlord provides you that verify its CAM assessments, and advise you if the CAM charges you have been billed are accurate.   An accountant or bookkeeper can usually handle such a task, but someone with commercial property management experience is usually the best at understanding all the complexity inherent in the CAM billing process.

Good luck.

-Jim  

Commercial Real Estate Investment

All Answers


Answers by Expert:


Ask Experts

Volunteer


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.

©2016 About.com. All rights reserved.