Know your rights as a commercial tenant
Commercial space tenants probably received their 2013 expense reconciliation statement (sometimes called CAM costs or Common Area Maintenance costs) in the first quarter of 2014.
After receiving these statements, which may have included an invoice and far less often a credit, what can you do?
The landlord or property manager is not likely to tell you your rights as a tenant. That isn’t their obligation.
Their contract is with the property owner. If agreeable, they may quote the clause in your lease back to you; otherwise just expect them to say “it is all in your lease.” That lease can be anywhere from a 25- to a 60-page document which can be challenging to both memorize or know how to interpret all the clauses.
For many commercial real estate tenants, rent is the second largest expense after personnel costs. Unless you absolutely trust the landlord, their accountant, the property manager and any clerk that may code an invoice, there is no way you can know whether the operating expenses are accurate unless you have the right to check. To permit this, your lease should have a clause giving you the right to hire a professional to look at the landlord’s books. The words can vary in any given lease but generally it’s referred to as an audit or review right.
Some clauses will specify who this can be; many just state that the tenant can look and you can assign someone as your agent to do this task.
Some have short time limits of 30 to 60 days after you receive the statement; some have no limits. If your right has not expired, your review agent will thoroughly review all cost-related clauses in your lease to determine the rights of the landlord for recovery of common area costs. Only then will they look over all invoices included in your statement in detail to ensure there are no mistakes, either deliberate or inadvertent, including any failure to remove an expense that the landlord has been reimbursed for and charged back to other tenants.
Having an audit done can save you hundreds and possibly thousands of dollars over the term of the lease.
To perform a review or audit at the end of the lease’s first year is the best scenario to clarify any concerns. For example, if you reasonably suspect an error in the seventh year of your 10-year lease and call for an audit of that year, you’ll want to know for sure that the first year’s figures were correct and, most importantly, available.
Don’t rely on your landlord’s filing cabinet to have safely organized and secured those old records. It may also be too late, as many matters are limited by law to two years.
Patricia A. Davies is a certified property manager with Re/Max Kelowna Property Management.