the wonderful world of common area ......the wonderful world of common area maintenance gary a....
TRANSCRIPT
![Page 1: THE WONDERFUL WORLD OF COMMON AREA ......THE WONDERFUL WORLD OF COMMON AREA MAINTENANCE Gary A. Kravitz, Esq. November 2, 2019 11/1/2019 2 Maddin, Hauser, Roth & Heller, P.C. – maddinhauser.com](https://reader035.vdocuments.us/reader035/viewer/2022081523/5fcf78b1cbce6b65bd256381/html5/thumbnails/1.jpg)
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Maddin, Hauser, Roth & Heller, P.C. – maddinhauser.com28400 Northwestern Hwy., Southfield, MI 48034 | p (248) 354-4030 | f (248) 354-1422 1
THE WONDERFUL WORLD
OF COMMON AREA
MAINTENANCEGary A. Kravitz, Esq.
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Maddin, Hauser, Roth & Heller, P.C. – maddinhauser.com28400 Northwestern Hwy., Southfield, MI 48034 | p (248) 354-4030 | f (248) 354-1422
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LEASES COME IN MANY FLAVORS
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Absolute Net
Modified Net/Modified Gross
Triple Net
Gross
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NNNTaxesInsuranceCommon Area Maintenance
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TENANT’S SHARE
OF CAM
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CALCULATION OF TENANT’S SHARE1. Current leased space vs. Leasable
Area2. Total square footage vs Leasable
Area3. Excluded Tenants4. Excluded Property/Outparcels
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WHAT IS CAM?1. Snow removal2. Janitorial3. Security4. Repairs5. Etc.
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WHAT ISN’T CAM?
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Any repairs, restoration or other work occasioned by fire, wind, the elements or othercasualty; income and franchise taxes of Landlord; expenses incurred in leasing to orprocuring of tenants, including without limitation leasing commissions, bonuses orother compensation payable to Landlord, Landlord’s employees or a third party, and anyrenovations of space for other tenants; interest or principal payments on any mortgageor other indebtedness of Landlord, or payment under any ground lease; compensationpaid to any employee of Landlord or its affiliates or agents above the grade of propertymanager; any depreciation allowance or expense; any overhead, interest or profit to theLandlord or one of its affiliates; costs and expenses of repairs and replacements, whichunder generally accepted accounting principles should be classified as capitalexpenditures, except for the current amortized portion of the costs and expenses (basedupon amortization of the cost on a straight-line basis over the useful life of such items)of repairs or replacements of items in place on the date Tenant opens for business thatare repaired or replaced due to wear and tear and not due to the initial construction orremodeling of the Building; any costs or expenses which are the responsibility of anyparticular tenant; . . .
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any costs or legal fees incurred in connection with any particular tenant; any costsincurred as a result of any violation by Landlord of any law or the terms of any lease ormortgage; any costs or expenses incurred for the removal or remediation of pollutants,contaminants or hazardous materials as such terms are defined by governmentalauthorities or for any insurance covering such risk; any expense resulting from thenegligence or willful misconduct of the Landlord, its agents, employees or contractors;the cost of any repair to remedy damage directly caused by or directly resulting fromthe negligence of any other tenants; reserves for anticipated future expenses; allinterest and penalties incurred as a result of Landlord’s negligently failing to pay any billas the same shall become due; costs of purchasing sculptures, paintings or other artworks; costs arising from political or charitable contributions; any costs or expensesfor marketing, advertising or promotion of the Building or any event or entertainmentthereon (including, without limitation, any costs or expenses associated with anymerchant’s association or similar association); any costs or expenses associated withany kiosk, childcare center, postal or packaging services facility or governmental officeslocated on the Building; . . .
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any costs or expenses associated with any undeveloped portion of the Building; anycosts or expenses associated with the operation of any valet parking service; theamount by which the sum of all property management, administrative, and similar fees,costs and expenses (whether paid to Landlord or a third-party) exceeds ten percent(10%) of total Operating Expenses (excluding any costs for utilities, taxes andinsurance); any costs or expenses associated with any space occupied exclusively byLandlord or any of its affiliates or agents; any costs or expenses associated with theinitial cost of paving or any pavement replacements, or the cost of pavement re-sealingmore frequently than once every five (5) years; any cost or expense included within (orexpressly excluded from) taxes and insurance amounts otherwise payable by Tenantpursuant to any other section of the Lease; any costs and expenses paid by any tenantwhose floor area is not included in the denominator in calculating Tenant’sproportionate share; or any costs and expenses incurred for operating or maintainingportions of the common areas outside the Premises where Tenant, at its cost andexpense, maintains such similar areas within or about the Premises.
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BIG ISSUES
1. Capital Costs2. Administrative Costs
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GROSS-UP SPREADSHEETOccupancy Actual Costs 10% Tenant Other Tenants Landlord’s
Portion
100% $10.00 10% = $1.00 90% = $9.00 $0.00
50% (without gross up)
$5.00 10% = $0.50 40% = $2.00 $2.50
50% (with gross up)
$(10.00*) 10% = $1.00 40% = $4.00 $0.00
*The actual cost is $5.00 grossed up to $10.00.
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CAM LIMITS
Non-Cumulative 5% CAP
2015 2016 2017 2018
Costs $1.00/sq ft $1.03/sq ft $1.09/sq ft $1.14/sq ft
ApplicableCap N/A $1.05/sq ft $1.08/sq ft $1.13/sq ft
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CAM LIMITS
Cumulative 5% CAP
2015 2016 2017 2018
Costs $1.00/sq ft $1.03/sq ft $1.09/sq ft $1.14/sq ft
ApplicableCap N/A $1.05/sq ft $1.10/sq ft $1.15/sq ft
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CAM LIMITS
Cumulative CAP 5% Compounded
2015 2016 2017 2018
Costs $1.00/sq ft $1.03/sq ft $1.09/sq ft $1.14/sq ft
ApplicableCap N/A $1.05/sq ft $1.10/sq ft $1.16/sq ft
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PROTECTION AGAINST CAM
ABUSES
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WHAT ISN’T CAPPED?
Costs that Landlord cannot control1. Snow removal2. Taxes3. Insurance
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CRITICAL AUDIT PROVISIONS
1. Look Back Period2. How quickly review must be
performed3. Teeth
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AUDIT TEETH1. Landlord pays for audit2. Threshold3. How does accountant get reimbursed:
hourly vs. commission?4. Cap on audit fee