Occasionally, we hear of a tragedy where a bomb explodes in a former war zone. Likewise, in commercial real estate where most markets have recovered from the recession, there is a time bomb of building ownership that can be disastrous for office tenants. That ownership structure is a TIC (Tenancy-In-Common). In this post, I outline what is a TIC, the challenges they present and how tenants can safeguard their interests.
Now that the holiday season is over, ‘tis the season for Operating Expenses and Tax reconciliation for office tenants. As most office leases allow the landlord to recapture increases in Operating Expenses and Taxes (which tenants commonly pay on an estimated basis over a calendar year), landlords are required to reconcile the year’s actual expenses and taxes to the tenant’s estimated payments. That reconciliation statement is typically issued in first quarter. If not carefully reviewed by a tenant, in all likelihood money is being left on the table as 90% of these statements have some errors. This is particularly important in cities like Chicago where tenants are seeing major increases in property taxes. While there’s not much a tenant can do with rising property taxes, they can lessen that blow by closely scrutinizing the operating expenses. Now, more than ever and in light of the new accounting standards, tenants must be aware of their occupancy costs and diligently pursue their audit rights. Outlined below are strategies tenants should employ in reviewing these statements as well as some ideas on how to craft these provisions in future leases. I am joined on this post with Mirela Gabrovska of MBG Consulting, a national expert in lease administration and auditing.