EVERYTHING YOU WANTED TO KNOW REGARDING COMMERCIAL REAL ESTATE LEASE ESCALATIONS Presented by: Gary M. Albrecht, Esq. Jan Alan Lewis, Esq. September 24, 2013 9/24/2013 Basic Concepts A. Definition of “Additional Rent” 1) 2) Includes all sums and charges other than base/fixed rent Escalations are a subset B. “Without offset/set-off, deduction, abatement or reduction” C. Remedies re: non-payment Basic Concepts (Cont’d) D. 1) Interest Maximum rate permitted by law E. Late Fees F. Other Fees (e.g., “bounced” checks) Operating Expenses/Common Area Maintenance (CAM) A. “Gross” vs. “Net” B. Base Year C. Definition (Landlord’s perspective) Operating Expenses/Common Area Maintenance (CAM) Cont’d D. Exclusions (Tenant’s perspective) Capital repairs, replacements or improvements Building expenses/roof Compliance with laws Management fees Going “green”/LEED certification Administrative charge Insurance premiums 1) 2) 3) 4) 5) 6) 7) a) b) c) Terrorism Earthquake Flood Operating Expenses/Common Area Maintenance (CAM) Cont’d “Pools” E. 1) 2) 3) Garbage After-hours lighting Pylon F. “Fast Food” Tenants G. Estimated/Reconciliation H. Dispute/Audit 1) 2) Contingency fee Time period Operating Expenses/Common Area Maintenance (CAM) Cont’d I. “Gross-Up” J. “Cap” K. All vs. “Controllable” 1) L. “Bumps”/fixed increases in lieu of Fixed CAM (with or without “controllables”) Real Estate Taxes A. “Gross” vs. “Net” B. Base Year 1) C. Decrease/“Backbilling” Definition (Landlord’s perspective) Real Estate Taxes Cont’d D. Exclusions (Tenant’s perspective) Rent taxes Upon sale or transfer 1) 2) a) 3) 4) Proposition 13 Assessments Representations and warranties E. Estimated/Reconciliation F. Dispute G. Right to appeal/indemnity Percentage Rent A. 1) 2) Definition (Landlord’s perspective) Natural “breakpoint” Gross Sales Exclusions (Tenant’s perspective) B. 1) Non-retail sales Cost of Living (CPI) A. Base Year or Base Month B. Price Index C. Equalization Factor D. Frequency E. Cumulative vs. Non-Cumulative/Simple F. “Cap” Miscellaneous A. 1) 2) 3) Electricity Submeter/Landlord’s profit Rent-inclusion/dispute Direct meter B. Promotional Charge/Merchant’s Association C. Media Fund/Advertising Charge Miscellaneous Cont’d D. Trash Removal Charge E. Barricade Charge F. Security Charge G. Water H. Sprinklers I. Insurance Miscellaneous Cont’d J. Fuel/Energy/Steam K. Porters Wage L. Change in Laws M. Sales or Use Taxes Conclusion/Questions? Contact Information Gary M. Albrecht, Esq. Co-Chair and Member, Real Estate Department (201) 525-6226 galbrecht@coleschotz.com Jan Alan Lewis, Esq. Member, Real Estate Department (201) 525-6228 E-Mail: jlewis@coleschotz.com