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Negotiating Commercial Lease Common Charges

When negotiating commercial lease common charges, both parties should attempt to be as specific as possible.  There is clearly a disparity in the knowledge of what these costs will be. As part of their due diligence, a prospective tenant should request that the landlord provide a detailed history of past lease common charges.

Many landlords believe that making these provisions vague is in their interest. Overbroad, cursory language is frequently accepted without comment by tenants.   This then gives owners the flexibility later to pass on any unexpected costs to their retail or office tenants.  Recent case law, however, has shown that that may not always be true. This matter involved a landlord who billed for shared expenses that included other properties owned by him. This is a common practice when owners have several properties close together. In these situations, landlords understandably take advantage of economies of scale and volume discounts and comingle the different buildings’ costs.  Owners generally have one property management company for all their buildings and that cost is shared across all the multiple properties. This practice of sharing expenses is known as “spreading”. It is not as unfair as it seems because the tenant’s proportionate share of the costs is adjusted accordingly.

In this case, the New York trial court ruled that the lease common charges language did not expressly reference the other buildings and therefore the tenant was not responsible for the costs of the landlord’s other properties.  In the interest of fairness, the Judge reformed the lease to recalculate the appropriate allocation of tenant’s responsibility for that particular building’s costs.

The lack of clarity in the lease common charges clause caused both the owner and tenant to spend unnecessary legal and accounting fees.

For precise drafting of commercial, retail and office leases call the Wright Law Firm at (212) 619-1500.

 

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