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Cam Charges

Having a dispute with a tenant or landlord? Rental Law discussion

Cam Charges

Postby Eliron » Wed Aug 31, 2016 10:33 am

Hi John - We are into the third year of a five year lease. In the last year we have had two changes in building owners. The most recent owner also provides property management. Under the new owner we have been presented with a 50% increase in the "property management fee", though our lease states we shall pay "property management" costs and does not explicitly state "fee". The operating expense statement has revealed 10 additional charges over and above the previous year, at a substantial cost($20K). The net CAM increase is 22.8% which seems excessive for a 1 year term. These additional charges and the property management fee are the bulk of the increased charge.  Our liability is 10% of the change.

Two questions:

1. What is typically included in a management fee; and what recourse might we have to a) require some disclosure or b) dispute the increase. 2. Unusual maintenance was cited as one issue; since the new owner would undoubtedly have been aware of these issues prior to purchasing the building(during due diligence) and negotiated a lower price, is it fair/legal or ethical for them to add these costs to the CAM charge increase?
Eliron
 
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Cam Charges

Postby Smedt » Sun Sep 18, 2016 4:49 am

Hi Kevin,

That's a troublesome situation.  CAM charges are probably the most consistently bewildering and frustrating to tenants.

As your first question, you've asked what's included in a management fee.  Nothing is included in a "management fee" per se, except for the cost of management.  That charge in and of itself is usually derived as a percentage of one of:(a) the total rent generated by the property, or(b) the total operating expenses of the property.  A number of 4% or 5% of the former, or 15% of the latter is pretty typical.

If management fees have gone up, it's because the management company(which may in fact be the owner itself) is charging more to manage the building.

I would recommend that a first approach would be to simply call the property manager and ask in a very polite and innocent-sounding way why the large increase has occurred.  If the prop.mgr. thinks they're dealing with an irate tenant, they may just clam up, especially if they've heard this complaint several times before.

You may also have a right to review the records of the landlord with respect to operating costs, but less than 1/4 of all leases grant that right.

2:  I won't comment on fair or ethical, as things unfair or unethical don't typically have a resolve.  Commercial real estate is not governed by any issue of fairness, but only by the signed agreement.  I also can't make a "legal" assessment, as I'm not a lawyer and can't comment on the legality of any actions, especially as things illegal in my jurisdiction may not be in yours.

However, I can offer this.  Virtually every triple-net lease is going to grant the landlord the right to charge tenants for all costs of operating the center.  When negotiating for my tenant-clients, I always ask for any incidence where "cost of ownership," "capital improvements" etc. is included in CAM recovery be struck from the lease.  It's my opinion that, while tenant should bear the cost of occupation of the building, it is unreasonable to charge them costs of ownership.

That said, repairs are not generally considered as capital improvements.  It is quite normal for the tenant to bear the cost of repairs.  As such, it's unlikely that the purchaser paid an explicitly amount less for the building because of expected repairs.  They would know in advance that they're not paying for those repairs, and so would the vendor.

The best course of action at this point is to review the operating costs provisions in the lease and evaluate what is and is not permissible as a charge back.  You may even wish to consult with your accountant and/or lawyer to get a professional opinion.  Then, if you are being over-charged, you can certainly attempt to take some action first by negotiation, and second by civil action.

Hope this helps,

John Smiley
Smedt
 
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