ADDITIONAL RENTS - Understanding Commercial Leases - Part 7

This is Part 7 of a multi-part series on Understanding Commercial Leases

ADDITIONAL RENTS

PURPOSE - It serves as a mechanism for landlord’s to get reimbursed for building expenses, such as property taxes, insurance, maintenance and sometimes management (TIMM). Tenant usually pays monthly estimates that are reconciled after year end.

COMMON TYPES

• NNN (Triple Net) - Landlord gets reimbursed for tenant’s proportionate share of TIMM
• Base Year - Landlord gets reimbursed for tenant’s proportionate share of INCREASES of TIMM
• Gross - Landlord gets no reimbursement

POTENTIAL TRAP - Landlord forgets to reconcile accounts and either Tenant owes Landlord money that goes uncollected or Landlord owes Tenant money that goes unpaid

LANDLORD'S INTEREST

• Get as much reimbursement as possible.
• Make sure monthly estimates are as high as possible so that likelihood of Tenant’s underpaying is reduced.
• Charging an “oversight” fee for overseeing administration of TIMM.
• Annual Reconciliation if money is probably owed to Landlord

TENANT'S INTEREST

• Placing a “cap” on reimbursement rates so as to limit liability, especially for future increases.
• Make sure monthly estimates are as low as possible, so that likelihood of Landlord overcharging is reduced.
• Negotiating out the “oversight” fee as it is pure Landlord profit.
• Annual reconciliation if money is probably owed to Tenant
• Asking for detailed documentation of Landlord's reconciliation if Tenant suspects they are being overcharged