Commercial Leases: A Discussion of Operating Expenses, Real Estate Taxes and Other Costs/Expenses
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Learn how to calculate operating expenses and find out which expenses can and cannot be passed through to tenants.A small earthquake occurs five miles from your company's office, causing minor structural damage at the office building leased by your company. When auditing your operating expense statement, you see a charge in the amount of $30,000 for structural repairs. You are the owner of a large warehouse. A new law is passed requiring certain retrofitting. After spending $200,000 on the retrofitting and including a portion of the cost as part of operating expenses, you receive a letter from your largest tenant stating that such cost is not a permitted pass through and that they will not pay you for the charge. All of the above examples involve the pass through of operating expenses. This topic will help you understand the different ways operating expenses are calculated, what charges are typically passed through to tenant, and which charges are limited, mechanisms for controlling the pass through of charges, and the methods of collecting and auditing such charges. As demonstrated above, failure to properly understand what expenses are to be passed through to a tenant and which are the responsibility of the landlord can cause unexpected expenses or responsibilities that can have dire financial effects.
Marc H. Goldsmith, McGuireWoods LLP
Self Study Credit - Audio & Reference Manual
Sponsored by Lorman Education
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