Triple net leases for commercial properties have become increasingly popular with landlords because they reduce the financial risk of property ownership. They insulate the property owner from almost every kind of increased expense, but they don’t insulate the owner from commercial lease problems.
Who Pays What?
- With a single net lease, the commercial tenant pays rent, utilities and property taxes.
- With a double net lease, the commercial tenant pays rent, utilities, property taxes, and building insurance.
- With a triple net lease, the commercial tenant pays rent, utilities, property taxes, building insurance, and building maintenance.
While a triple net lease may look favorable to a tenant because the rent is usually lower, commercial lease problems can arise in triple net leases in the one area that the property owner can control – the cost of building maintenance, or CAM (common area maintenance) charges.
Tenants want to – need to – be able to budget for monthly rent. An increase in property taxes or insurance may be an unavoidable hit once a year. But a significant increase in CAM charges can seem arbitrary, unnecessary, and even unfair.
- Reroofing a building
- Changing an HVAC system
- Repaving a parking lot
- Installing a new security system or hiring a security guard
Are these maintenance or capital expenditures? Should they be passed along to the commercial tenant?
Look At Your Commercial Lease
Some commercial leases put a cap on CAM. Some commercial leases use a formula to calculate CAM. Some commercial leases define exactly what is and what is not a “common area” and what kind of charges can be included in common area maintenance. That, of course, would be the ideal situation.
Unfortunately, many leases are not that specific, or they have a complicated CAM formula that the tenant can’t calculate for themselves. (If the building does not have separate water and power meters, it may even be challenging for the landlord to properly calculate the bill, much less the tenant who doesn’t have all the information.)
If you are a commercial tenant, ask for an itemized statement of the charges and then review it in light of your lease. If you don’t understand exactly what your lease says, you may need the help of a business lawyer to explain the details (or the lack of detail that has resulted in you being on the hook for an unexpectedly high bill).
If you are a landlord, you can avoid commercial lease problems by working with an experienced attorney to ensure your lease agreement is clear, thorough, and reasonable. Even if your lease allows you to continue to add charges to the bill, such actions risk the loss of tenants.
It would be far better to disclose current and potential future CAM charges so commercial tenants can judge for themselves whether they will be able to pay the charges. Such honesty about upcoming charges minimizes the risk of winding up in court, or of having an empty building. This can be part of your initial lease negotiations.
Whether you need help reviewing, negotiating, or litigating a commercial lease dispute, the landlord-tenant lawyers at The Fell Law Firm can help. Call toll-free at 972-450-1418 or use the online contact form to schedule a consultation.
