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Commercial Real Estate Investment/Are rent increases cummulative if not enforced?

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Question
Our landlord just gave us a 2 week increase notice for over 11%.  He had not increase any rent in the past 4 years of a 7 year lease.   Since the annual increase is capped at 3%, does that mean the cap for 4 years is 12%?  Or just 3%?  Is the increase cummulative?

Thank you.

Below is the relevant part of lease.

(d) The Minimum Rent set forth at Section 3(h) shall be adjusted commencing on the First Rental Adjustment Date and thereafter as set forth in Section 3(j) Adjustments, if any, shall be based only upon increases (if any) in the index. The Index in publication three (3) months before the Lease Term Rent Commencement Date shall be the ‘Base index. The index in publication three (3) months before each Rental Adjustment Date shall be the “Comparison index”
As of each Rental Adjustment Date, the Minimum Rent payable monthly shall be determined by increasing the initial Minimum Rent by a percentage equal to the percentage increase, if any, in the applicable Comparison Index over the Base Index . If the Comparison Index for any Rental Adjustment Date is equal to or less than the Comparison Index for any preceding Rental Adjustment Date (or the Base index, in the case of the First Adjustment Date), the Minimum Rent for the ensuing period shall remain the amount of Minimum Rent payable monthly during the preceding period. When the Minimum Rent payable as of each Rental Adjustment Date is determined, Landlord shall promptly give Tenant written notice of such adjusted Minimum Rent. The Minimum Rent as so adjusted from time to time shall be the “Minimum Rent” for all purposes under this Lease. If at any Rental Adjustment Date the index no longer exists in the form described in this Lease, Landlord may substitute any substantially equivalent official index published by the Bureau of Labor Statistics. The substitute index shall then become the Index hereunder. Notwithstanding the foregoing and anything stated elsewhere within this Lease to the contrary, any annual increase to Minimum Rent during the original Lease Term shall be capped at 3%.

Answer
Henry:

The text of this provision states that the "Landlord shall PROMPTLY give Tenant written notice of such adjusted Minimum Rent".  If you have not received WRITTEN NOTICE that your minimum rent had increased during the last 3 or 4 years then, as stipulated in the escalation process defined, "the Minimum rent for the (each annual) ensuing period shall remain the amount of Minimum Rent payable monthly during the preceding period."

In other words, if you did not get written notice from your landlord at the start of your second lease year that your minimum rent had increased - then your minimum annual rent stayed the same rent during the second year as you paid in the first year of your lease.  The same would be true for your next following year of occupancy in your premises, i.e., if you did not receive written notice from your landlord that your minimum rent had increased for the third year, then your rent remained the same as it was for the prior year (which was the same as the rent for the first lease year).    Get it?  Your rent cannot have gone up during the prior period of you lease because your landlord did not notify you that it had gone up at each annual adjustment date; hence, until the current rental adjustment date, your minimum rent cannot have changed.  Your landlord, however, can increase your upcoming year of minimum rent over the preceding period rent (which is still the same as the first year of your rent) if in fact the actual Comparison Index justifies an increase.

Your landlord cannot decide NOW to go back to the rental rate paid for the first lease year and each following lease year and retroactively increase the minimum rent in order to create a larger rental increase for the current comparison year rental.  Sorry, he has missed his chance.  

Your landlord will probably disagree with this interpretation of your escalation clause and I am not an attorney, so you must consult with a local commercial lease attorney to discover if the local Landlord and Tenant law is consistent with this interpretation.  I believe that the word "Promptly" limits your landlord's option to make retro active escalations now.  Perhaps not.  

Please let me know how this dispute is resolved.

Good luck with your effort.

-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.

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Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.

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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".

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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.

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The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.

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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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