Errors in lease charges can range from simple miscalculations to wholesale misinterpretations of lease language. While most commercial leases share a common basic structure, leases are individually negotiated and almost always contain unique terms that will create errors if not meticulously followed.
Here is a sampling of things that often go wrong:
Operating Expenses / CAM Pass-Throughs
Pro rata share miscalculations ▪ Base year inadequacy ▪ Expense stop inadequacy ▪ Charging of excluded costs ▪ Improper charging of capital expenditures ▪ Incorrect calculation of savings for allowable cost-saving capital items ▪ Misallocation of costs among buildings ▪ Failure to bid service agreements ▪ Charging above-market fees for non-arms-length services ▪ Excessive management fees ▪ Failure to apply weighting to square footage ▪ Inclusion of costs directly reimbursed by tenants ▪ Inclusion of costs for unrelated buildings ▪ Inclusion of brokerage fees ▪ Inclusion of unpaid rents as bad debt expenses ▪ Misinterpretation of expense cap formulas ▪ Improper allocations of expense pools ▪ Improper inclusion of marketing fund charges ▪ Excessive administrative fees ▪ Improper calculation of association dues ▪ Improper inclusion of unrelated costs
Base Rent Charges
Per square foot rent miscalculations ▪ CPI miscalculations ▪ Rent commencement errors
Porters’ Wage Escalations (NYC)
Incorrect base years ▪ Incorrect selection of employee class ▪ Improper calculation of time-based benefits ▪ Erroneous inclusion of non-financial benefits ▪ Changing assumptions of benefit entitlement ▪ Failure to select statistical employee ▪ Incorrect use of multiplier ▪ Inclusion of incorrect insurance coverages ▪ Failure to discount for “new hires” ▪ Failure to discount for vacation replacements
Space Measurement
Improper inclusion of vertical penetrations ▪ Use of incorrect BOMA or REBNY measurement standard for the building’s classification ▪ Improper inclusion of exterior building areas ▪ Measurement to incorrect interior surface ▪ Improper treatment of common areas ▪ Mismeasurement of rentable and common areas
Real Estate Taxes
Failure to apply tax refunds ▪ Failure to adjust tax base for incomplete assessments ▪ Failure to pursue tax certiorari consistently from year to year ▪ Improper inclusion of personal property taxes ▪ Improper inclusion of income taxes ▪ Failure to properly account for costs of tax professionals
Electric and Other Utility Charges
Misapplication of rates ▪ Use of incorrect rate schedules ▪ Addition of surcharges to utility costs ▪ Wiring of meters to unrelated spaces ▪ Misreading of meters ▪ Miscalculation of multipliers ▪ Incorrect assumptions as to usage ▪ Incorrect counting of equipment for surveys ▪ Failure to properly notify tenant of survey results ▪ Excessive charges for chilled water and condenser water ▪ Failure to recognize rate reductions
