Is it Time for an Operating Cost Audit? MASSAGE Magazine

When leasing commercial space, massage tenants pay two rents: the base rent and operating expenses or common area maintenance charges. While the base rent can—and should—be negotiated, the common area maintenance charges can be challenged. When was the last time you challenged a landlord or property manager about these operating expenses or common area maintenance charges? Probably not recently or never, right?

To clarify, operating costs are the day-to-day management and maintenance expenses charged to the massage tenant; examples include asphalt repairs, snow removal, property insurance and so on. Massage tenants pay a proportionate share of these costs based on the space they occupy. Therefore, if a massage tenant occupies 12 percent of a building, he or she will pay for 12 percent of the operating costs. Paying by this said proportionate share is the industry standard, but of course there are deviations for special circumstances like free-standing buildings.

Nonetheless, every lease generally or specifically outlines what can or cannot be charged back to the tenants, but it’s up to the tenants to be watchdogs. A good industry rule of thumb is that an expense only qualifies as a legitimate recoverable operating expense if all tenants benefited from the work (such as fixing parking lot potholes—but not replacing or installing window blinds or painting walls for a tenant as an incentive to renew his/her lease).

I can share with you from firsthand experience that landlords and their property managers often take liberties and frequently make mistakes in charging back or recovering common area maintenance charges from massage tenants. Practically every operating cost audit I performed (typically for a group of tenants in the same property) was riddled with discrepancies or chargebacks that should have been born by the landlord at the landlord’s expense.

One of the most common discrepancies is when the landlord doesn’t pay for the operating costs attributable to vacant space. If the building is 15 percent vacant, the landlord should be paying proportionate share attributable to that vacant space. The other tenants should not be required to carry the weight.

Mathematical miscalculations by the property manager administering the operating costs are not uncommon. In one operating cost audit we performed, we caught the error and, therefore, every tenant’s administrative charges had to be adjusted.

Here are a few of the shocking expenses I have uncovered that the landlord wrongly charged back to tenants: leasing commissions paid to realtors; insurance and snow removal attributed to other distinctly separate properties; flowers for the landlord’s secretary; kiosks purchased for mall common areas from which revenue went directly to the landlord; landlord’s work improving the interior of a unit for lease and so on.

Consider getting all tenants together for an operating cost audit. Don’t be fooled by a letter from the landlord’s accountant verifying that the books have been audited. All it means is there was a matching invoice for every check written by the landlord. It doesn’t mean the charge was a valid operating cost.

Dale Willerton, MASSAGE MagazineDale Willerton is The Lease Coach and a Certified Lease Consultant who works exclusively for tenants. Willerton is a professional speaker and author of Negotiate Your Commercial Lease. Got a leasing question? Call Willerton at (800) 738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.

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