Common Area Maintenance Charges (CAM) Explained

Posted by Lee Sterling | Posted in Carlsbad, Economics, Landlord-Tenant, Legal, Negotiation, North County, Office, Real Estate | Posted on 11-08-2012

 

This is a follow-up to a brief talk I gave to the Business Resource Committee of the Carlsbad Chamber of Commerce about the difference between Rentable Square Feet and the Usable Area of a building and the impact of the Load Factor on evaluating the cost of renting one commercial space compared to renting another  space in a different building.  Because of the Load Factor, the usable sq. ft. of the tenant’s space is lower than the rentable sq. ft. charged to the tenant.    I briefly mentioned the impact of CAM charges on that evaluation. This follow-up is so that I can point out some things that a tenant needs to keep in mind when evaluating CAM charges and the lease the tenant may be considering.

PRO RATA SHARE

This is another time that the Rentable Sq.Ft. and Usable Area are important for the tenant to evaluate. The ratio between the tenant’s Rentable Sq.Ft. and Usable Area results in the percentage of the CAM charges that are going to be paid by the tenant. If the Usable Area in a building is 100,000 sq. ft. and the tenant’s rentable sq. ft. is 10,000, the tenant would be charged with paying 10% of the CAM charges as the tenant’s pro rate share.

WHAT OPERATING EXPENSES

Unfortunately, some landlords have tried to use CAM charges as another profit center! It’s important for the tenant to review what is going to be included in the CAM charges. They should not include capital charges, upgrading to comply with laws, or repairs and maintenance,  which are topics we’ll cover in another blog post.  A good way to evaluate the CAM charges is to request the records for the last three years of the CAM charges. That will allow the tenant to see what kind of increases have been charged to existing tenants.

THE BASE YEAR

If a tenant enters into a gross lease (in which the landlord includes all expenses in the base rent for the first year) the tenant has to make sure that it is not charged for any expenses during that base year. In evaluating expenses, it’s also important to make sure that expenses are “grossed up,” which is another topic to be covered in a separate blog post.

COMPARISON TO OTHER PROVISIONS

The tenant should always check the CAM charge provision against the repairs and maintenance provision, the real property clause, and the compliance with laws provision to make sure that the landlord doesn’t try to include any of those costs in the CAM charges that the landlord may have agreed to pay in these other provisions.

WRAP UP

These are just a few hints on evaluating the CAM charges provision of a proposed lease. It’s important for the tenant to have a good broker helping to evaluate the lease, and to have the lease reviewed by a competent licensed real estate attorney.

 

Lee Sterling is a retired Colorado real estate attorney  and California real estate broker working with commercial tenants looking for space to buy or lease. He can be reached at 760-230-1492 and at lee@leesterling.com    

DRE Lic.# 01319489

 

 

 

 

 

 

 

McArt Studio Opens in Carlsbad

Posted by Lee Sterling | Posted in Carlsbad, Landlord-Tenant, North County, Office, Real Estate | Posted on 03-03-2012

Amy McArthur has gone from being a British warrior in Helmand Province, Afghanistan, to a successful Art teacher-entrepreneur here in Carlsbad at 3183 Roosevelt Ave. I was fortunate to find her this great space right across the Boys & Girls Club of Carlsbad,. with plenty of free parking.

Amy has come up with some unique ways to teach people how to create their own canvasses, and how to make it a fun time. One of her promotions is “Creative Sips,” open for the whole family, where you can bring your own beverages to enjoy while you learn to paint. Another successful program involves teaching kids to paint and enjoy art through cooperation with schools. That has led some parents to organize birthday parties at the Studio, which, in turn, has led other parents to organize fund raisers combining charity and learning to paint!

Amy is not only a great teacher, but a wonderful artist in her own right. Make sure to ask her to show you some of her work! To get more information about how great programs and classes, you can reach Amy at 760-889-6904 or by email at:    contact@mcartstudio.com

Here’s Amy taking a well-deserved break during her tour in Afghanistan.

Great Carlsbad Office Opportunities

Posted by Lee Sterling | Posted in Carlsbad, Economics, Landlord-Tenant, North County, Office, Real Estate | Posted on 01-02-2011

One of the great buildings available today

I just received a special promotion on four great office buildings here in Carlsbad. If you know someone  looking for office space in North County now is a terrific time to be negotiating. Take a look at these four wonderful opportunities by clicking on this link:  Great Office Locations

Then have them give me a call to discuss their specific needs. For 27 years I represented landlords and developers in the leasing and sale of commercial property as a real estate lawyer. Today i just represent tenants and never landlords in the leasing of space!

What You Can Learn At Costco

Posted by Lee Sterling | Posted in Carlsbad, Economics, Technology | Posted on 05-07-2010

Costco's Polish Sausage

Costco's Polish Sausage

I sitting alone at a table at Costco in Carlsbad, eating my Polish Sausage lunch (with soft drink, $1.63) the other day, and a nicely dressed gentleman asked if he could join me. There was plenty of room,  so I said “of course.” He sat down, and his cell phone rang. Obviously, I couldn’t help but overhear his conversation, although I tried to avoid eavesdropping. He mentioned a fired employee, who had wiped out her hard drive, and they were now in process of having to retrieve and rebuild the hard drive information.

I mentioned to him that I had overheard his comment, and we discussed the need to do backups of computer hard drives every day. Not just because hard drives are going to crash (we’ve had it happen twice in the past 8 years), but because there might be that disgruntled employee who wants to disrupt your business. It can cost thousands of dollars to rebuild seemingly lost information. In our case, we not only physically lost a hard drive, but our in-house back-up system also crashed at the same time!

Now we use an in-house back-up system, and we use an off site backup system called Mozy.. Just go to Google and type in “back-up systems,” and you’ll be taken to lots of information. As a commercial tenant, you want to be sure not to lose your valuable computer data because of a hard drive crash OR because of a disgruntled employee!

A is for Apple And Also Attornment

Posted by Lee Sterling | Posted in Carlsbad, Encinitas, Landlord-Tenant, Legal, Miscellaneous, Negotiation, North County, Oceanside, Real Estate, San Diego | Posted on 30-10-2009

leaseform

We now get to the A of SNDAs (Subordination, Non-disturbance, and Attornment Agreements in leases.) First a brief recap of Subordination and Non-Disturbance. You may remember from our previous articles that if you’re a tenant, and you’ve agreed to subordinate your interest in the lease to any mortgage, trust deed of other security device, and the holder of one of those security devices forecloses, your lease may be terminated. Leases usually provide for that subordination to security devises even if they are created after the lease commences. The non-disturbance clause protects you in the event of a foreclosure (or in the event the property is sold to another owner) by providing that if you’re not in default you’ll be able to keep your lease in effect.

The attornment clause stems from the old feudal law that there was a personal obligation between the lord of the manor and his tenants, and that those obligations were reciprocal. The consent of the lord was required for a sale of the tenant’s interest, and the consent of the tenant was required for alienation (sale/transfer) of the reversion or remainder interest in the property. Thus, the lord could not alienate his reversion or remainder interest without the consent of the tenant. The consent was called an attornment. The necessity for an attornment was abolished before the American Revolution by the English Statute of Anne. In California, the common law rule eliminating the requirement of attornment has been confirmed by statute. However, just to be sure, leases contain an attornment clause that provides that if title to the property is transferred by the Lessor or if title is acquired through foreclosure or termination of a Security Device the tenant will attorn to the new owner.

The language of the SNDA in each lease has to be examined carefully because there are differences that may result from the specific language of the three inter-related clauses. There are some interesting California cases involving the interpretation of SNDAs. Be sure to have the lease reviewed by California counsel before signing any lease.

Lee Sterling was a real estate lawyer in Colorado for 27 years. He is not licensed as an attorney in California. He does have a California real estate license # 01319489.

Tenant Protection When Landlord’s Property Is Foreclosed

Posted by Lee Sterling | Posted in Carlsbad, Economics, Landlord-Tenant | Posted on 10-05-2009

foreclosure-extiAllan Koljonen, a fellow member of the Carlsbad Chamber of Commerce, and a knowledgeable real estate investor, read our blog about what happens to tenants when landlords file bankruptcy, and wondered about the effect on tenants when a foreclosure is filed against a landlord’s property.

It depends…isn’t that a typical lawyer’s response. California follows the rule that a properly recorded lien or interest in real property is superior to any subsequently recorded lien or interest in real property. So, if a lease is recorded before a trust deed is recorded then the lease is superior, and the foreclosure of the deed of trust does not affect the previously recorded lease.

If, however, the trust deed is recorded prior to the recording of the lease, then the foreclosure of the trust deed will extinguish the lease and the tenants and landlord of the property will be relieved of their respective obligations under their leases. However, the parties may change the effect of the law by a special agreement in the terms of the lease. Very often tenants want to retain their lease rights after a foreclosure. They may have built up a local market for their location, they’ve spent thousands, perhaps, making leasehold improvements, and they certainly don’t want to incur all the expenses of having to move. In some cases, it’s the foreclosing party who may not want to have the lease automatically extinguished by the foreclosure. The rents may be at market or higher than current market rents, the tenants may be well-financed and well able to afford the current rent even if it is now higher than current market rent, and the foreclosing party doesn’t want leases to be extinguished, which would result in vacancies. So, it may be in both parties’ interest to have an agreement in the lease that changes the effect of the automatic extinguishment of a subordinate lease in a foreclosure.

The protection available to tenants and foreclosing parties changes the California law in the lease agreement by using subordination, non-disturbance, and attornment clauses. These are commonly referred to as SNDA. If you’re a tenant, determine whether your lease was recorded prior to or after the trust deed affecting your leased property, and make sure you read and understand the SNDA because the consensus is that there are going to be increasing commercial foreclosures affecting lease rights. I’ll cover each of the clauses of the SNDA in separate blog postings. Check back often for updates or subscribe to the RSS feed above. If you any general questions about the SNDA or commercial tenant’s law please email me at lee@leesterling.com. As you know, I was a Colorado real estate lawyer for 27 years, but I’ve retired and I’m not licensed to practice law in California. For specific legal questions you should always consult a lawyer licensed in the state in which the property is located.

By the way, if you like the image at the beginning of this post you can click on it to go the web page of Donald Teel, a commercial real estate broker in Prescott, AZ for information about what’s happening in that part of the country! You can also go to Donald’s web site by clicking here.

North County Industrial Vacancy – Carlsbad Highest

Posted by Lee Sterling | Posted in Carlsbad, Economics, Industrial, Market Research, Oceanside, San Marcos, Vista | Posted on 04-05-2009

industrial-buildingGrubb & Ellis\BRE Commercial (“Grubb”) is one of the leading commercial real estate brokerage companies in the area representing landlords and commercial building owners. They put out research reports quarterly on the commercial real estate market. Their first quarter of 2009 report on the industrial market covers all of San Diego, but I’m most interested in what is going on in North County.

The Grubb Report indicates that there is a total of 14,255,418 square feet of industrial space in Carlsbad, 5,331,920 square feet in Escondido, 8,498,851 in Oceanside, 7,642,154 in San Marcos, and 12,971,905 in Vista.

The total vacancy factor in each community, which includes some space available for sublease, is: Carlsbad – 19% (with 4% sublease vacancy); Escondido 6.2%; Oceanside – 14.8%; San Marcos – 8.5%; and Vista – 7.5%.

To get a copy of the full report, go to http://is.gd/wCYP

With the high vacancy factors in Carlsbad and Oceanside now is a good time to acquire new space or renegotiate your lease at favorable terms. If you’d like assistance in that regard call me at 760-230-1492 or email me at Lee@LeeSterling.com for a no cost consultation.