C — February 28 - March 13, 2014 — Commercial Office Spotlight — Mid Atlantic Real Estate Journal
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C ommercial O ffice S potlight
By Jeffrey L. Silberman, Kaplin Stewart Lessons from the Winter of Discontent
A
s I stare at the drive- way, once again cov- ered in snow, that
from this global-warming- defying winter. What have I learned? The most obvious lesson (to me) is that snow and ice removal is the epitome of an “uncontrollable cost”. It has become unusual for any tenant not to insist on a limi- tation on operating expense costs, affectionately known as “CAM caps”. In a competitive environment, landlords have grown accustomed to granting this request and are routinely giving CAM caps. However, it is critical for a landlord to ex-
clude from any cap costs that it cannot control. This year, a landlord with a cap on CAM that does not exclude snow and ice removal costs will find its pro forma in a sad state. Even with a carve-out for snow and ice removal, most landlords bill CAM in fixed monthly installments, based on prior years’ estimates, with a year-end reconciliation. Last year was a light snow year, so the estimates are likely fairly low. In that case, landlords are experiencing a cash flow crunch by having to fund
enormous snow removal costs. To remedy this real-life issue, landlords should consider including in their leases the right to bill snow removal costs on an interim, or as- incurred basis. That way, the landlord does not have to wait until the end of the calendar year to true-up expenses and recover excessive snow costs. Many office leases bill op- erating expenses over a base- year. That base year is used throughout the term of the lease as the comparison year. If the base year expenses are
a section of the MARE Journal P.O. Box 26, Accord, MA 02018 781-871-5298 • 800-584-1062 fax 781-871-5299 www.marejournal.com Publisher/CEO Linda Christman lchristman@marejournal.com Section Publisher Elaine Fanning efanning@marejournal.com Co-Publishers Steve Kelley skelley@marejournal.com Section Editor Karen Vachon editor@marejournal.com unusually high, the landlord is harmed because the dif- ference between actual costs and base year costs are ar- tificially low. If the 2014 is the base year, then the snow costs alone will balloon the base year costs well above normal levels. Landlords should negotiate the right to adjust the base year expenses to back out any extraordinary expenses, such as a heavy snow year. Another option is to have a separate base stop number just for snow. Finally, for the first time since superstorm Sandy, our region has experienced wide- spread power outages. Land- lords must be cognizant of what their utility and casual- ty clauses say. A landlord does not want to find itself with an abatement of rent because of an extended power failure. Similarly, landlords should focus on whether a tenant carries business interruption insurance, as that is a viable way to mitigate a tenant’s rent exposure when the leased space cannot be used. These are all valuable les- sons to learn, although I’m sure most of us would prefer to sit in the sun. Jeffrey L. Silberman, Es- quire is a principal in the Real Estate Transactions group of Kaplin Stewart in Blue Bell, PA. n Commercial Office Property Spotlight
I shove l ed not 2 hours ago, I can- not help but try to find some silver lining at the edge of this Wi n t e r o f Discontent.
Jeff Silberman
While gazing through the window, a warm feeling en- velops me as I realize that I am learning valuable lessons
Committed to Your Goals
The guy on the left spent lots of money to hire a bunch of experts whose ideas never took flight. The guys on the right hardly took notice – they were too busy flying their idea. If they were law firms, which one of these guys would you rather work with? Contact: Jeffrey L. Silberman • jsilberman@kaplaw.com 910 Harvest Drive, Blue Bell, PA 19422-0765 • 610.941.2518 • www.kaplaw.com Visit our Construction Blog: www.pennsylvaniaconstructionlawyer.com Other Offices: • Cherry Hill, NJ 856-675-1550 • Philadelphia, PA 215-567-3120 Kaplin Stewart A t t o r n e y s a t Law Total commitment works wonders. Talk to us first.
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