EAST LONGMEADOW, Mass., Aug. 1, 2018 /PRNewswire/ -- With real estate occupancy cost being the second or third largest cost in most retail and commercial companies, it's essential for a company to educate those negotiating the leases or approving the negotiations about landlord occupancy cost overcharges. Paul Kinney, co-founder of the National Retail Tenants Association, predicts that as commercial real estate transitions into something new, managing occupancy costs will become even more critical.
He explains, "Commercial real estate changes are putting pressure on both tenants and landlords. When tenants close their doors, landlords find themselves with excess vacant space and consequently, fewer tenants to allocate occupancy costs to. Not surprisingly, the industry is seeing an increase in the number of tenant-generated high-profile lawsuits contesting landlord lease overcharges."
As malls, strip centers, and other types of retail locations are integrating mixed-use tenants such as office, residential, healthcare, and hotels to diversify their portfolios, the allocation of costs in commercial real estate is becoming much more complicated. As a result, lease administrators and auditors report seeing more cost misallocations than ever before. They stress that lease negotiators need a thorough understanding of the property's current tenant mix and layout as well as its intended plans for the future to help mitigate this, since those factors directly impact the terms of a lease and its subsequent administration.
As the primary education resource for the lease administration profession, the NRTA's upcoming annual education forum in Houston offers tenants the opportunity to prepare themselves by addressing these issues.
As landlords reconfigure and renovate, tenants are seeing large increases in expenses such as capital and building-related expenses incorrectly being passed through in their CAM expenses by landlords. Accordingly, tenants need to focus on occupancy cost allocation and be diligent about ensuring all landlord billing is in accordance with the terms of the lease to protect themselves.
NRTA's conference curriculum offers in-depth reviews of best practices that protect tenants from possible overcharges while still maintaining landlord-tenant relations. Topics include costs from renovation and reconfigurations, excess tenant usage, mixed-use within a property, and commingling costs across properties.