NNN Lease - handling repairs for tenants

[Michelle R.]

We just closed last week on a neighborhood shopping center. We have 16 tenants at the moment and the center has 30% vacancy.

There was a heavy rain the other day and water came in through a tenant's back door frame. A tenant called to put in a work order. This is not due to a roof leak, which as the landlord, we would take responsibility for fixing. The leases state that the repair obligation is at the tenants own cost and expense.

This is our first commercial NNN property so we are unsure which repairs the landlord typically handles. To my understanding NNN means hands-off, tenants handle their premises, landlord handles issues external to the leased premises. Do doors, hinges, door lock issues typically get attended to by landlord and billed out to tenant in a NNN lease? (Being as doors are part of the exterior of a building?)

The previous owner used to repair doors hinges, etc for the tenants. It looks from their work order summaries that they were billing this out as general maintenance to the entire center and not to the individual tenant, at a rate of $72 an hour. 

We are concerned the vacancy is partially attributed to heavy CAM costs. ($8.75/ft of which $3/ft is taxes - Central NJ).

Options are :

-Keep doing what previous landlord did. Hire out the repair from our management company, bill it to the shopping center with a markup for our effort. Expense it to the CAM of all tenants as a group, not just the specific tenant who had the issue. This elevates costs for everyone, bringing the tenants' business expense onto the income statement of the property. My hunch is they did it this way so they wouldn't have to charge and collect from individual tenants.

-Bill it out directly to the tenant. We are having to find providers and be responsible for their quality of work, and now collect from the tenant.

-Send a letter to tenants that going forward, these issues are on them.

[Chris T.]

Before you do anything, I would read the lease(s) carefully.  The lease should dictate who is responsible for what and then follow the lease.  Now is your time as a new owner to make sure that the leases are followed, even if the previous owner chose to do things differently.