CAM Caps Anyone?

CAM Caps Anyone? | May 23, 2011

This week I am posting about “Common Area Expenses” which is a topic which is often intentionally over looked in both retail and office leases. If you are well versed on this topic then this post will be perfect bed time reading. If, however, you routinely skip over this issue, get ready for some sleepless nights. I find that this section of the lease is often ignored because either the parties assume it is standard language or they won’t admit they just don’t understand it. Regardless, the failure to drill down into this paragraph can cost both the landlord and tenant some serious angst. I have attached an excellent article prepared by two of my colleagues, Margaret Jordan (Kane-Russell/Dallas) and Robinson Plowden (Sutherland-Asbill/Atlanta), that should serve as the go to desk reference on this issue.SP-#3389981-v1-CAM_Costs__Caps__Audits_and_New_Ideas This article details the costs and expenses typically allocated among the landlord and tenant in a lease for Common Area and related expenses. It uses retail as an example but the concepts equally apply for office and other areas. Obviously, the failure of a tenant to recognize the CAM expenses which are reasonably payable increases its CAM expense inordinately. Conversely, the failure of the landlord to include expenses normally payable by a tenant eats into its IRR. As such, it behooves the parties to a lease to pay attention as a mistake in this area is a costly one.

Now, speaking of the unfair payment of expenses–On this day in 1895 our beloved Supreme Court issued one of its all- time best rulings by deciding that Congress had clearly exceeded its authority in imposing an onerous and counter-productive law commonly known as “the graduated income tax”. In fact, it was denounced by Senator John Sherman of Ohio as …”a symbol of socialism, communism and even devilism”. Since the law was new and controversial, the party in power in the Congress decided it was best to sneak it in…er…to pass it as part of the “Wisconsin-Gorman Tariff Act”. But when they started to collect the tax, it was a secret no more. The Court thought the concept of a graduated income tax was not worthy of discussion on its merits so they struck it down on procedural grounds. Unfortunately, that allowed later and lesser Regulators, Legislators and even Jurists to change procedures and charge taxpayers. Oh the agony…..