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Commercial Real Estate Investment/Property tax included in the operating cost?

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Question
Hi
I have a question regarding calculation of Administrative cost. The lease states that the tenant is to pay 15% of "all of the foregoing costs as an administrative expense" under the "operating costs".  Would this include the property tax or no?  Only possible clause under what is included is "the cost and expense of complying with all federal, state and local laws, orders, regulations and ordinances applicable to the Property which are now in force".  
Among the things that are excluded from the operating costs is "taxes on Landlord's business"

Thank you,
J.

Answer
Jane:

I wish I could definitive in my answer.  I have seen property tax included as part of administrative expenses and I have seen property tax excluded.   If the lease text does not specifically list "property tax" as one of the "foregoing costs" I would hope you could avoid this very heavy additional included charge.   

The concept of the 15% charge is to allow the landlord to have a way to collect a fee that it uses to pay the managing agent a fee for the work it does in maintaining the various management duties related to the paying the property's bills.   The logic of a 15% fee is fairly balanced until it comes to a massive lump cost like the real estate tax bill that really does not require the managing agent to go to exceptional effort to pay.   

The problem is that to successfully challenge the landlord's inclusion of this cost may require you to know what the "standard practice in the industry is" regarding this particular expense in your market area.  Contacting other property owners/managers/tenants and establishing such data could require extensive efforts.  If you know any tenants at nearby properties, you might contact them to discover if they pay an administrative fee for real estate tax.  Chances are their lease may not even assess such CAM costs or administrative fees on a similar basis.

The question you ask is one that has been disputed by great numbers of tenants for many years over many similarly questionable administrative costs.   Contacting a local Landlord/Tenant legal specialist might tell you how such a dispute; if litigated in your jurisdiction, would result.

If real estate tax is not stipulated as one of "all the foregoing costs as an administrative expense" you may have difficulty avoiding this 15% component of administrative cost.

Good luck,

-Jim  

Commercial Real Estate Investment

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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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