Why Do You Think Your Lease’s Audit Clause Provides Any Benefit Or Protection?

Print

Audit clauses in leases are not throw-away provisions. They are not something to be copied from the last document and the one before that and so on. While intended by landlords to “make” pass-through cost billings “final,” as often written, they won’t satisfy that purpose. Similarly, a tenant or other kind of occupant who wants to “contain” its landlord’s right to audit sales records for percentage rent purposes also may want to read what follows. For simplicity (and because the overwhelming number of such situations involve tenancies), we’ll speak of tenants and leases, but the same concepts apply to Covenants, Conditions and Restrictions (CC&Rs) and similar, but differently named, documents. [Read more…]

Print

CAM and Capital Expenses

Print

This is long one. Brew that coffee before you delve in.

There is no “law” as to whether Common Area Maintenance Costs (CAM) should include capital costs. It depends on the business deal, and that, in turn depends on the relative bargaining power of the parties and the custom in the locality. Essentially, are capital costs already “in the rent,” or are they to be added, if and when incurred, as additional rent, usually as part of CAM?

Let’s back up. What broad cost categories are tossed into CAM? Put another way, does CAM only cover Common Area items? Most would agree that the Common Areas are those parts of a project (e.g., a shopping center) used in common by each of the tenants and their respective customers, delivery people, etc. Clearly, that includes the parking areas, sidewalks that run from premises to premises, driveways, and even landscaping. It is also generally accepted that liability and property insurance costs, though not strictly for “Common Areas,” are “common costs,” and are reasonably included within CAM. It is less commonly accepted that costs to maintain the roof are common costs, even though the cost of shared HVAC is usually lumped in as a “common cost,” and for convenience, made a component of CAM. [Now, perhaps shopping center people should move over to the “dark side” where the office people hide and replace the term “CAM” with “Operating Expenses” given that very few CAM clauses limit themselves to Common Area expenses.] [Read more…]

Print