Randy Reid: Property maintenance, repairs and expenses in the … – Waco Tribune-Herald

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Strange how few details landlords and tenants recall from their lease agreements. Outside of payment amounts and end dates, the rest grows hazy over time. Beware: There is peril for the forgetful. Your signature carries significant responsibilities. A valid lease agreement has the muscular force of law behind it. It is the first arbiter of disagreements. And you are bound to that dotted line, hazy or not.
Misunderstandings between the landlord and tenant can arise anywhere. No area is more susceptible to error than those involving maintenance and repairs. These items are not in fine print or located in obscure, sneaky locations at the back of the lease agreement. Maintenance and repair language is in conspicuous locations in almost all commercial leases. If you missed that part, it’s your fault.
Take the the Texas Realtors Commercial Lease, Form TXR-2101. The form has a list of 21 specified maintenance and repair items. You can add more items as needed. Responsibilities lie in the checked boxes. These items are negotiable, but the final agreement’s lucidity condemns the responsible checkbook. You may be unaware of potential financial exposure when things begin to break.
Triple net charges are especially baffling. These expenses do remind one of charges for additional luggage at the airport. Property taxes, property insurance and common area maintenance, known as CAM, are the titular three.
CAM can mean many things. It implies a common area shared with others and assumes a multi-tenant property. The term is a misnomer if a single tenant leases a property. In that case, a more accurate term may be external maintenance. This may include big ticket items like roof replacement and parking lot repairs. Smaller expenses could be landscaping, electricity for parking lot lights and property management. Whatever items the list contains, you ought to know who is responsible.

To determine property taxes, multiply the property assessed value by the tax rate. The total tax rate is the sum of revenue-seeking taxing entities like cities, counties and schools. Somebody must pay them. You might get away with some deferred maintenance, but you don’t defer tax payments. It is a significant expense and had better be accounted for.
Insurance costs are mostly devoid of controversy.
In gross leases, the landlord pays the property taxes. There may also be a gross lease with a base year adjustment. The tenant pays for increases in taxes over the base year, usually the year the lease executed. In triple net leases, the tenants pay the property taxes. The taxes are often paid in monthly installments. The landlord escrows and then pays to the taxing authority when due. Sometimes the tenant pays them all at once when they become due.
Tenants sometimes grouse that property taxes should be the landlord’s expense. For some oddball reason, they have the notion that property taxes are the operating expense of ownership. That is not necessarily so. If the landlord pays the property taxes, his base rent will likely be higher. He’ll absorb the extra expense. Property taxes are no different than any other operating expense. But who pays what and when is important.
Repairs, maintenance and triple net operating expenses are permanent fixtures to improved real estate. They always exist. Clear the haze. Read your leases. And most of all, cover your assets.
Landlords are feeling the squeeze from workers coming back to the office. More from “Bloomberg Wealth with David Rubenstein.”
Randy Reid, co-founder of
Reid Peevey Commercial Real Estate, has nearly 40 years of property experience in Waco and dozens of Texas cities. He is a member of the Tribune-Herald Board of Contributors.
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