Published by Marc Freedman on July 8, 2019
Landlords and tenants have long disputed how to define their common area maintenance costs. There is often a gray area around whether the landlord or tenant is responsible for certain costs. This is something to keep in mind when it comes time to renew a lease. There will always be maintenance fees associated with leasing a property. You might not know it, but you do have the power to re-negotiate your maintenance terms when the time comes. Here’s how.
Landlords incur expenses to keep their properties up to date. They can either can be defined as a capital expense (CapEx) or an operational expense (OpEx). These expenses are meant to protect, maintain, and/or improve the value of a property. They can include maintenance fees, property taxes, printer paper for your physical lease agreement, and insurance. It’s up to the property owner to take care of these items.
The expenses that are billed to tenants of any building are called a CAM or “common area maintenance.” These fees can include maintenance, parking, landscaping, utilities, or even snowplowing in the winter.
Notice how maintenance is listed in both? Here’s where the fees get tricky.
Let’s say a landlord repaves his entire parking lot one spring and charges it as it is a capital expense. Another landlord repaves his parking lot one pothole at a time. It takes five years but in the end, he’s repaved the entire parking lot. He charges it as a CAM. The end result is the same but the process is different. Both are considered capital expenses. Which landlord charged appropriately?
To answer this, we must remember that “capital” is not a loose term that can be defined however a landlord wishes. Just because they want to change something doesn’t mean you should have to pay for it.
Operating expense escalations, otherwise known as rent increases, must adhere – by law – to special regulations. This means that there is no leeway when it comes to what expenses can and cannot be added to your lease agreement. The reality is, “expense” (CAM) and “capital” (OpEx) are two very different things.
Unless your original lease specifically identifies which expenses are to be charged as CAM (ie. annual tax increases, ongoing up-keep, doormen, etc.) and both the landlord and the tenant agree on those expenses at the beginning, capital expenditures must be excluded from rent escalation. This is where you, as a tenant, have room to negotiate new terms.
Still confused? This is where we can help. Our experts can review what and how your landlord is charging you for maintenance. We can help renegotiate your lease to save you money.
If you think your landlord is charging you too much, you’re probably right. Let’s take a look and help you find hidden savings in your lease agreement.