# Commercial Tenant - Seeking Advice



## Synergy (Mar 18, 2013)

Sorry in advance for the long post.

Background: Commercial Net Lease (based on a 2 yr term with 2 - 2 yr options to renew) - basically 6 yrs. Currently I'm into my 5th year of the term.

I pay basic rent - $16 / per square foot & Additional Rent (MIT) - my prroportional share (35%), which is based on my square footage. Recently the landlord / board of directors (family run business) decided to change the structure of my rent. For the 1st 4 years of the term, additional rent was paid on an "as needed basis". Basically they would invoice me when the bills (taxes, utilities, maintenance, etc.) came in and I would normally pay them within 5-10 business days - often sooner. The board recently decided to estimate the additional rent and have all tenants pay their proportional share monthly. At the end of the year they will reconcile the accounts and tenants will either be re-imbursed for any excess payments, or have to pay any balance owing. This was okay with me as my prior commercial landlard - much larger professionally run commercial building ran things this way.

Here's the kicker. The reconcilliation report that I was provided for 2013 & 2014 outlined my proportional share as being 28%! Additionally, there was expenses listed that we've never had to pay before - including: bank charges / interest, accounting / legal, and a commercial insurance policy. My first impression was that these new expenses are "cost of doing business" and should be covered by the landlord. However, it was noted within my original lease that I was required to pay for the landlords insurance policy along with my own policy. I had my lawyer review the lease originally so I figured it was customary to do so in Net Leases. I contacted the landlord to ask him about these new expenses (bank charges & accounting fees) that I nor any of the other tenants of the building have ever been charged for. I also suggested that he made a mistake on my proportional share - stating that I owed only 28% now.

As it turns out the 28% proportional share was the correct figure and upon further investigation I figured out that it was a mistake in my square footage measurements. I got my hands on the actual floor plan rather than a hand written plan that was located within the original lease agreement.

So basically over the last 4+ years I've overpaid a significant amount for both my basic rent and additional rent. Going forward the Landlord was going to rectify the additional rent but said nothing about changing my basic rent amount. He's coment was that I had agreed to the proportional share and rental amount in the lease agreement but that he felt that it would be only fair for me to pay 28% going forward. My response was that I agreed upon those numbers based on the square footage that I was renting! Now knowing that my square foot measurements are wrong I'm wondering if I can request compensation in the amounts that I have overpaid? On the phone he suggested that they could waive my 2013 balance owing (reconcilliation amount) in lou of the error in my proportional share. The problem is, the amount I paid is WAYYYYYY more then the tiny balance owing for 2013. Basically by providing me with the new correct proportional share and by trying to compensate me for the mistake he's in essence admiting that he's responsible for his / the boards mistakes.

After doing the math, I sent my landlord an email with the sums of money that I have overpaid for both basic and additional rent over the last 4+ yrs and requested that he discuss with his board and get back to me by Monday. I'm thinking I'm going to have to get lawyers involved but I thought I'd see if anyone had any advice / suggestions for me.

Thanks


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## Synergy (Mar 18, 2013)

In summary, I was overcharged basic and additional rent (MIT) for the past 4+ yrs based on misrepresentation (incorrect square footage measurements). Can I recoup my losses for past years? Could the contract be voidable based on misrepresentation? 

I know tenants don't have the right to withhold rent payments, but knowing that the figures are wrong, could I pay for the correct proportional share and the correct base rent amount based on the accurate square footage measurements going forward? Or would I have to continue to pay the wrong amounts until either I come to a written agreement with the landlord or wait until the lawyers get involved?


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## Just a Guy (Mar 27, 2012)

It would probably depend on what your contract says...


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## Synergy (Mar 18, 2013)

I'll add another twist. The contract is in essence void or voidable. It specifically stated in the lease that notice to renew was required to be signed 90 days prior to the end of the term (first 2 yrs). I had to "pull teeth" to get the first option to renew signed by both parties. The 2nd option to renew was never done - I requested the form but never got one. But I agree, I'll have to follow the contract until I determine whether it's actually void / voidable or until we come to some other agreement...


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## Mall Guy (Sep 14, 2011)

Well, couple of things come to mind: some leases have a clause that doesn't allow any dispute over Rent (rent, and additional rent) to go back further than 12 months (some don't). Don't know how much money you are talking about vs lawyer fees - small claims court may be your friend here. Have they agreed to a reduction in the size of the unit - does the lease allow for the unit to be certified (by a survey, engineer or architect) - might be worth the $500-$1000 if you are staying beyond the remaining term. If you can get them to go back one year, your doing pretty good . . . what if it was the reverse and they were under billing you ?

As for the renewal, did you give proper notice, was it to be on the same terms as the current lease (including rent)? Do you want to argue its null and void so you can leave early ?

Litigation is an expensive way to negotiate, but sometimes necessary to set the right tone for the discussion.


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## Synergy (Mar 18, 2013)

Reply to Mall Guy:



> Well, couple of things come to mind: some leases have a clause that doesn't allow any dispute over Rent (rent, and additional rent) to go back further than 12 months (some don't).


No such clause mentioned within my lease.



> Don't know how much money you are talking about vs lawyer fees - small claims court may be your friend here.


15-20K. Not a huge amount but enough to ruffle my weathers a little. Will have to look into small claims court, etc. Hopefully we won't have to go there.



> Have they agreed to a reduction in the size of the unit - does the lease allow for the unit to be certified (by a survey, engineer or architect) - might be worth the $500-$1000 if you are staying beyond the remaining term.


They have not agreed to a reduction in the size of the unit as of yet, but they have agreed to reduce my proportion share of the additional rent going forward to 28% rather than 35%. The lease made no mention of how the unit was measured, whether it has or can be certified, etc.



> what if it was the reverse and they were under billing you


I guess that may depend somewhat on the circumstance. If the landlord was responsible for the mistakes you'd think that they would be held accountable, even for instances in which the tenant was under billed. Funny thing was, I was just speaking with one of the other tenants last night who told me that the landlord went after a previous tenant that previously owned her business for expenses owing to the Landlord as a result of past years underpayment. Not sure if or how they settled this.



> As for the renewal, did you give proper notice, was it to be on the same terms as the current lease (including rent)? Do you want to argue its null and void so you can leave early ?


All options to renew are on the same terms other than a small increase in rent for final 2 yrs (approximately 5% increase). I gave notice for my first option to renew and I attempted to give proper notice prior to the second option to renew but I was never provided with the document to be signed - I asked for it a few times. I have the signed copy of the first option to renew. So no, I didn't give proper / signed notice for my final option to renew. I'd prefer not to void the lease as I had no plans on leaving early. However, I also have no intention on paying more rent / proportional share then I should be paying and I feel that I should be compensated for being overcharged over the first 4 yrs of the term.


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## Mall Guy (Sep 14, 2011)

Follow up question . . . did the size of your unit change (get smaller) or the overall size of the building (get bigger). Either change could affect your pro-share of costs, but only one would affect the base rent.

Not sure what the local market conditions are for finding a replacement tenant (or you finding new space), but as you are in the 5th year of the term, offer to renew early as part of the negotiation . . . blend any settlement of the past overpayment into a reduction of future rents . . . even great locations in great markets have downtime due to tenant turnover. A renewal is the landlord's most cost effective leasing activity (no downtime/vacancy period, fixturing/move-in/rent free period, no commissions, no landlord work to fix this or that/tenant inducement . . . all of which can add up quickly to 6 months rent while they play the taxes and to heat the premises). $15,000 over five years is only $250/month (don't know what your gross rent is, but that is 5% of $5000 per month). Do a little math . . .


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## Synergy (Mar 18, 2013)

^ Thanks Mall Guy. I'll crunch some numbers.

Answers to your questions:

1 - The size of the building and that of my unit and all the other units have stayed the same. It's a solid concrete block building with a flat roof that includes 3 units.
2 - Local market - lots of commercial space available, lots of vacant space in prime locations. It's not uncommon to see spaces sit for years at a time. It took just over 2.5 yrs for my past landlord to re-lease the space I previously rented (5 yr term). He was loosing approximately 45K per year after I left. I moved out secondary due to lack of signage.

The landlord has a pretty sweet deal with his current tenants and he wants to go to Florida for the winter so I'd imagine he'll want to work something out before he leaves.

Thanks for your suggestions.


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## Berubeland (Sep 6, 2009)

The landlord owes you every penny back and you only have one year from the date you discover the breach to litigate. The clock is ticking. 

Neither of you have any signed contract with each other and so the landlord could kick you out at any time and you do not legally have to pay rent. 

You are in a relationship so an agreement that benefits both parties would be best and for God's sake get your lease signed and a new agreement in place.


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## Mall Guy (Sep 14, 2011)

Synergy said:


> The size of the building and that of my unit and all the other units have stayed the same. It's a solid concrete block building with a flat roof that includes 3 units.


Sorry, I get that the actual physical size didn't change, but for your unit to go from being 35% of the area of the building to 28% means that the numerator (your unit) or the denominator (the build) had to change - example: 3500 sf/10,000 sf = 35% . . . 3500 sf/12,500 sf = 28% . . . 2800 sf/10,000 = 28% . . . one or both of these has to be different in order to change the pro-share . . . or someone is finally just correcting an error in the original pro-share calculation ?


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## Mall Guy (Sep 14, 2011)

Berubeland said:


> The landlord owes you every penny back and you only have one year from the date you discover the breach to litigate. The clock is ticking.
> 
> Neither of you have any signed contract with each other and so the landlord could kick you out at any time and you do not legally have to pay rent.
> 
> You are in a relationship so an agreement that benefits both parties would be best and for God's sake get your lease signed and a new agreement in place.


Don't disagree with your 1st point, just pointing out the law of diminishing returns with a law suit . . 

Would argue a little (mind you, very little) with your 2nd point . . . I would suggest (lease language to the contrary) that OP is a tenant on an over-holding/month to month basis, and either of them can terminate on delivery of proper notice (one month?). But if the tenant stops paying the rent altogether, the landlord can take some pretty immediate steps (lease language to the contrary) including termination or distraint with or without notice. Of course different story if the landlord accepts a reduced amount.

100% on your 3rd point !


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## Cal (Jun 17, 2009)

Thats how I understand it.

I would at least contact and consult with a lawyer for a review of the situation.


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## Synergy (Mar 18, 2013)

Mall Guy said:


> or someone is finally just correcting an error in the original pro-share calculation ?


I'm assuming the above. The only thing the Landlord mentioned was that he couldn't use the 35% or else the numbers wouldn't jive / they would be over 100%. I questioned whether I had overpayed for the first 4 yrs of the term and he then offered to waive any amounts owing for for the 2013 reconcilliation in lou of past years. I found out today that he had undercharged a past teant for a few yrs of TMI and the past tenant told me he was forced to pay. The landlord wouldn't assign his lease otherwise - sold his business / new tenant taking over the lease. Sounds like someone's not great with numbers 

I hope to learn more this wk.


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## SpIcEz (Jan 8, 2013)

I know nothing about commercial lease laws.

But one thing is clear. If he forced another tenant to pay what was owed because he was undercharged AND he wont pay you back what he overcharged you, then he is double dipping.

He is in fact charging 100% + whatever overcharge (say 7%) to his tenants (107%).

Not to mention the shaddy shenannigans about lawyers fees, etc... (cost of doing business fees).


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## Berubeland (Sep 6, 2009)

I do know something about commercial leases and it's completely based on the lease. Without an agreement there is no requirement to pay rent on the part of the tenant nor is there any requirement for the landlord to provide space for even one day. In some leases there are frightening escalation clauses that are triggered once the lease expires.


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## Mall Guy (Sep 14, 2011)

agreed . . . without reading the lease, there is no correct answer to be provide on a internet forum . . . and escalation clauses like the monthly rent will be equal to 1/6 of the previous monthly rent !

Favorite tenant move . . . when faced with a default/demand for a couple of years worth of escalation that the LL hadn't billed . . . TT paid and the next day issued a statement of claim in small claims court for the same amount . . . beautifully played !


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## Synergy (Mar 18, 2013)

Update. Still waiting for the Landlord to get back to me. I've had a chance to gather up information from all the other tenants. It's obvious he was taking in 107% MIT. 

Even worse, he was billing 1 tenant on a monthly basis for MIT (estimated yearly costs) and the other 2 tenants where being billed randomly as the bills came in. The 2 tenants billed randomly never received invoices for certain expenses - hence the surprise when he decided to bill everyone monthly for MIT - the 2013 reconciliation statement outlined expenses that tenants have never seen or paid for before (bank charges, accounting, insurance, etc.)- at least directly! I'm assuming some of the extra 7% was used for those purposes. The tenant billed monthly never received a reconciliation statment in prior years! 

If that wasn't enough, the square footage measurements for each of the units where different in each of the lease aggrements. This is a huge accounting nightmare - some tenants being overcharged, others being undercharged, some never invoiced for certain expenses, etc. It's not rocket science and it's all fixable, but my question is what type of recourse could the teants make against the landlord in such a situation. Can you sue for "uselessness"?  The sad thing is, the landlord was not likely taking in much if any extra money for himself! I won't know until we have the square footage measurements properly assessed.

I've sent an email to the board / landlord and request resolution by Friday at the latest.


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## Synergy (Mar 18, 2013)

Question: Is it customary for a net lease (single or double - NOT Tripple net) to include the landloards banking charges / interest, and accounting / legal fees within additional rent.

I asked my accountant and she thought that it was not customary and that if it's not specifically stated in the lease agreement then "she wouldn't pay it". 

Within my lease there's a broad / vague statment that states something similar to the following: "the lease is net to the landlord and that tenants are responsible for all expenses with regards to the operation of the premises, with the exception of repairs specifically agreed upon within this agreement by the landlord and mortgage interest.

It goes on further to describe additional rent itens including hydro, property taxes, maintenance items, etc. BUT does not mention anything about bank charges and accounting / legal fees.

My initial impression was that these are fees associated with running a company / coorporation and not necessarily directly related to the operation of a commercial building

Any thoughts???

No resolution as of yet, but the Vice President told me that mistakes had been made and there will be attempts made to rectify things in order to move forward.


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## Synergy (Mar 18, 2013)

^


> In C.C Tatham & Associates Ltd. v. 2057870 Ontario Inc. (Ontario Superior Court of Justice, 2011) a landlord tried to argue (unsuccessfully) that management fees should be implied if there is a net lease clause. The lease did not provide for any management fee, but it did provide that it was a "completely carefree lease to the landlord." While holding that there is no substantial difference between an "absolutely net lease" and a "net/net" lease, the court ruled that this does not mean the tenant is responsible for the payment for the performance of duties that would normally be done by a landlord in its own interest.


Based on the above, could one imply that simply because there is a net lease clause in the agreement doesn't necessarily mean that additional expenses such as bank charges, accounting fees, etc. can be included if they haven't been specifically stated within the lease?


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## 2tire2work (Jul 20, 2013)

I know someone who was a tenant in a big shopping mall was under charge for about 6 years. They went to court and he only need to pay back 2 years. The shoppi g mall is big corporation with big bank rolls to hire lawyers. The tenant made away with aprox 15k for 4 years. But he paid the price when he try to sell his business. The landlord didn't want to renew his lease and he was on a month to month basics. His was trying to sell for 160k which was a fair price. It was sold for around 80k after being in the market for more than a year. 
He won the fight but the mall used every possible way to make it difficult for him after that.


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