Is your common area maintenance expense (CAM) taking off like an unguided missile? Does the monthly statement for CAM provided by your landlord set forth any detail supporting the charges? Does your landlord provide you with a monthly statement for CAM? Do you have any understanding whatsoever of what your CAM includes?
Most purchasers of coin laundry businesses do not spend much time reading the fine print of a lease. It is difficult for a lawyer, let alone a lay person, to keep from dosing off while you read the description in a lease of common area maintenance expense. Every phrase in that section of the lease, however, is an opportunity for the landlord to pass along a charge to the tenant. So drink strong coffee, turn off the television, send the wife and the kids to the movies, and, if necessary, sit near an open refrigerator door, while you read this portion of the lease!
The most significant economic cost in a lease to a tenant, aside from base rent, is that portion of the lease requiring a payment of operating expenses and taxes. Landlords are very attentive to recovering as much as reasonably possible, and sometimes as much as unreasonably possible, of costs to maintain and repair their building and related common areas. These expenses most typically include the following:
- Maintaining and repairing common areas such as parking lots
- Janitorial service
- Maintaining the building structure, heating and air conditioning systems
- Capital Improvements
- Management and administration
Has the landlord hired his out-of-work brother-in-law to water the common area landscaping at $900 per month? Does the landlord actually spend money on capital improvements and parking lot maintenance, or does he simply, year-in and year- out, add to the reserve? What should you do?
Leases frequently contain audit provisions under which a tenant may review and, if appropriate, contest CAM. Audit provisions found in leases frequently provide, however, that after the audit is concluded, the tenant shall pay all costs unless the size of the error found exceeds a specified threshold, such as 5%. Determine whether the threshold error sum is calculated as a percentage of the tenant’s share of CAM or as a percentage of total CAM for the building or shopping center. Calculate the dollar amount of the error you must demonstrate in order to recover the cost of the audit. Determine the target areas for review. If you feel comfortable with your chances, request the audit.
If you are contemplating the purchase of a coin laundry, a review of past CAM it is essential to ensure future emotional and financial tranquility. In your review of the proposed lease, be sure that an audit clause is included. Many commercial printed forms do not include such a provision. Absent an audit clause in the lease, you will probably not have any enforceable right to an audit without initiating litigation in order to obtain access to the landlord’s records, since there does not appear to be any authority providing a tenant with an implied right to audit the landlord’s books and records.
The moral of the story? If you wish to avoid choking on the consequences of signing a lease that you don’t understand, there is no substitute for retaining an attorney to assist in carefully and slowly digesting the document for you!