Saving Money Through Facility Audits
Defining Occupancy Costs
To often, tenants focus only at the base rent they pay each month. While that is a good place to start when calculating your cost to occupy leased (or even owned) property, it is only a start. If you are in a NNN or MG lease, you know you have to add in some portion of the direct cost of taxes, maintenance, or insurance (sometimes grouped together as a Common Area Maintenance "CAM" cost). Tenants who occupy space on a full service gross basis rarely look at additional costs they may incur during their tenancy; those costs which goes beyond the base rate printed on the first page of your lease. To be more specific and to calculate your real "controllable" occupancy costs, you must separate out all costs that are directly related to occupying the space you are in. Do not include business costs such as copies, cabling equipment costs but do include rent, parking, or anything else that might appear on the landlord's monthly statement.
What It Costs a Landlord
Often, you will see a phrase "Base Year" inserted in a lease in reference to additional charges the landlord may collect during the term. To better understand this phrase, let's go back a step to what makes up your Base Rent. Stay with us on this… The landlord invested a certain amount of cash as a down payment to build or buy the building. Like a home, the rest is mortgaged out to a bank or other lending institution to which he pays interest and principle. He must also pay the taxes on the property, the cost to maintain and insure the building plus a fair return on investment. Your base rent is calculated on that cash flow.
It's Not The "Good" Old Days
Years ago, in many parts of the country, a landlord signed a lease for a specific term at a fixed rate. They calculated their costs over the term and came up with a flat rate. Ah! Then came the Consumer price Index (CPI). What an excuse for the landlords to bump up the rent each year. They could justify the increase by saying the cost of goods and services was going up every year so they could no longer afford to charge a flat rate for rent. After all, the government said so!!! But why does your rent not only go up but you also get hit with "Additional Rent?" The plot thickens.
Each year around March or April, you should be getting a statement from your Landlord which reconciles the previous year’s operating expenses. Be sure to read it carefully. If you’re not sure of what the numbers mean call your broker. Most will help. If it’s complex, try a lease audit specialist. You might be surprised what you find out and how much you may save.
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