With increasing measures to contain and mitigate the COVID-19 outbreak, Tenants are taking a hit regarding operating expenses.
- Has your Landlord posted COVID Notices throughout your building?
- Are there sanitizer stations at all entry and access points to your building?
- Is the Landlord enhancing the cleaning of the restrooms?
- Are all touch points of the common areas being cleaned frequently throughout the day?
- Has your landlord upgraded the filters in the buildings HVAC system to high-level MERV filters?
Who is going to pay for these services and products?
These services and products will be “passed-through” under the Operating Expense (OPEX) and Common Area Clauses (CAM) provisions of a Tenant’s lease. And theses expense will be costly to Tenants.
Adding “insult to injury,” we also have Proposition 15 on the ballot in November, which will provide for commercial property taxes to be based on the current market value of an asset versus the cap of 2% per year provided for by Proposition 13. Increases in tax cost, beyond the Base Year of a lease, are passed-through to tenants under a Full-Service Gross Office lease, the typical lease format for office space.
What’s a tenant to do? Here are 4 actions you can take to protect your interests:
- Understand your lease’s Base Year. The Base Year is typically the year the lease is signed. The Base Year sets the benchmark to compare all future years’ cost of running the asset for the Landlord. The difference between the Base Year and subsequent year costs is passed-through to tenants per the pro-rata share of space a tenant occupies in an asset. Request your Base Year cost from your Landlord to understand the categories that are affected in future years.
- Review your Landlord-Provided Documents, such as Operating Expense Estimates and Reconciliation statements, promptly upon receipt, as there is a limited timeframe to ask the Landlord questions and request clarifications. Errors are compounded with each month that passes.
- Ensure Audit Rights are included in lease to provide Tenants with a vehicle to confirm that Operating Expenses are correctly charged and that the Landlord is administrating the lease accurately.
- Revise Your Base Year if you are re-structuring or securing a new lease at an existing location or exercising an Option to renew at an existing location. A new Base Year, 2020 or beyond, will be inclusive of the added cost of COVID and Proposition 15 in the event the bill passes.
This is just the tip of the iceberg regarding the impact of Operating Expenses. Mazirow Commercial provides Lease Administration Services to manage the complex issue of Operating Expenses. Contact us to learn about the ways in which we can save you rent dollars, preserve your rights, and ensure you are seated at a level negotiating table with a Landlord.
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