Last week’s posting about pass-through “caps,” such as for CAM Costs (or Operating Expanses), Taxes, Insurance Premiums, and the like engendered a lot of discussion here, on LinkedIn, and across various “back channels.” Much of that discussion wasn’t about “caps” themselves. It was about the mystery of how the Common Area Maintenance (CAM) Cost “sausage” is made. [Read more…]
What’s The Problem With A Cap On CAM Costs Or Operating Expenses Or Taxes?
May 26, 2013 By 9 Comments
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Once parties to a lease (those being a landlord and its tenant) agree that the tenant will pay a share of operating expenses (or call them common area maintenance – CAM – costs) or taxes, what has been agreed is that the tenant will pay its share, not 35% of its share (or some other figure, like 92% or 107%). Yes, its share!
We’ve Ruminated about some aspects of what falls into the bucket called CAM Costs or Operating Expenses, and we’ve Ruminated about what might and might not be a “tax.” [We have more to say about a “tax,” but not this week.] But, once you’ve determined what falls into the bucket and what the tenant’s percentage might be, is there anything to do beyond some multiplication? Very often, the answer is “yes.” Tenants like to “cap” what they pay, i.e., pay no more than some negotiated limit even after Operating Expenses or taxes have been allocated by a fair percentage formula. [Read more…]
PrintA Pig In A Poke And Other Lease Negotiation Sad Tales Of Woe
May 19, 2013 By 5 Comments
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Have you ever bought a $300,000 house solely based on reading a classified ad? What about doing a $3,000,000 lease (30 years, including options, at $100,000 a year) without ever seeing the property or at least taking a good “look” at the property from far away? Why would you NEVER buy a house that way, yet regularly do a lease based solely on a term sheet and with no other “due diligence” investigation? Simply said, you shouldn’t. [Read more…]
What Would Rent Insurance Be If There Were Such A Thing?
May 12, 2013 By 5 Comments
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So, the lease requires the tenant to carry a policy of “rent insurance” or requires the landlord to carry a policy of “rent insurance” or, worse, requires both of them to do so. What does that policy say and how does it work?
Trick question! You won’t find a rent insurance policy. You may find a commercial property insurance endorsement providing coverage for “rental value,” but don’t look for “rent insurance.” While you are at it, don’t call it: “rental interruption insurance,” “rent loss insurance,” or “rental income insurance.” Those are nice concepts, but lack any precise meaning. If you want to call it “use and occupancy insurance,” go ahead, but that form of policy is long, long gone. [Read more…]
PrintOldies Are Not Necessarily Goodies, Especially When You Find Such Terms In Your Leases And Other Contracts
May 5, 2013 By 4 Comments
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We wanted to address “Rent Insurance” today, but got somewhat distracted when we started out by writing “there really isn’t something called ‘Rent Insurance,’ even if lease writers insist otherwise.” We then were going to describe “Business Interruption and Extra Expense Coverage” because that’s really what lease writers are thinking when they say “Rent Insurance.” That was to take us into “how all of that works” and “where it doesn’t work.” It would have been pages long. [Read more…]
In A Lease, If I Didn’t Do It And You Didn’t Do It: Who Should Suffer The Loss?
April 28, 2013 By 6 Comments
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Stuff happens. Ask Bill Nye or David Hare.
And, in modern America, it seems as if someone else is always at fault, not me. [If you take no blame, it must be them; Who must then pay my fines. It’s really is quite the cleverest ploy; By which illogic shines. – Gary Bachlund.]
Actually, there are times when bad things happen and the landlord and its tenant are each “good people.” Here are some examples: [Read more…]
PrintEverything Is Money In A Lease, But We Argue Mostly About Allocation Of Risk
April 21, 2013 By Leave a Comment
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Money, that’s the only reason a landlord and its tenant do business with each other. There are some items that, by something that approaches natural law, are firmly in the court of one or the other. For example, landlords are expected to pay their own mortgages. Tenants are expected to pay their own employees. There may not be a lot of other examples. For instance, at first blush, one might think that the tenant gets to keep its sales revenue. That’s often true, but what about percentage rent clauses? [Read more…]
When I use the word, ‘Fixture,’ “It Means Just What I Choose It To Mean — Neither More Nor Less.” [Humpty Dumpty on Retail Leasing]
April 14, 2013 By 2 Comments
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What do we mean when we say something is a “fixture”? The most accurate answer is: “Who knows?” One reason for such uncertainty is that the answer depends on: (a) why you are asking; (b) who you are asking; (c) when you asked the question; and (d) where you were standing when you asked the question. The real reason is that the answer depends on the intent of the parties for whom the answer would be important.
What is not in doubt is that the question’s answer is important, for both leases and mortgages (and for taxation and some other kinds of issues). [Read more…]
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