Proportionate Share Adjustments: Tenants Beware of Costly Calculations

Most retail and shopping center leases contain a provision &mdash; which appears fair and reasonable on its face &mdash; to the effect that the tenant's proportionate share of the center or retail area is fixed at a certain percentage, <i>eg,</i> 35%. This percentage is then utilized by the landlord for the purpose of calculating the tenant's contribution to real estate taxes, common area maintenance expenses, and insurance premiums incurred by the landlord in operating the center or building. However, it's not always simple to calculate that share. For example, assume a theater tenant negotiated a lease in a center under construction, which provided that its proportionate share of the center was 35.2%, based upon the detailed plans and specifications for the center then in existence. Upon completion of the center, the tenant was presented with a statement by the landlord advising that the theater occupied 50%. In addition, when the theater tenant was negotiating the lease, it was advised by the landlord that its share of the common area maintenance charges was estimated at approximately $250,000. The bill the tenant received for its share of common area maintenance charges for the first year of operations was approximately $3 million. How could this happen? And how can you prevent this from happening? Read on.

18 minute read June 01, 2004 at 09:05 AM

By

Douglas J. Danzig