Tenant's Checklist of Silent Lease Issues

"Over-reimbursement
Do all of the tenants' percentages add up to 100%, or is the landlord being over-reimbursed for esclations? Are the anchor tenants paying their share, or is that share being shifted to the other tenants?


Multiple escalations
The lease should not allow multiple escalations that give the landlord duplicative recoupment of a cost increase, or double-count any charges included in operating expenses or elsewhere. For example, [for a shopping center,] the marketing director's salary should be either an operating expense or a charge to the marketing fund, but not both.


Lease termination during calendar year
Apportion escalations in the event that the lease terminates during a calendar year. Otherwise, the landlord could argue that annual calculation procedures obligate the tenant to contribute to an entire year's escalations. [Moderator's comment – that would be egregious.]


Free rent period
Does the free rent period apply to escalations or just base rent?


Waiver of escalations
Escalations should be deemed waived if not billed within a certain period.


Statement by professional
An independent managing agent or (better) a CPA should prepare the statement of operating expenses. Attach as a lease exhibit the landlord's operating expense statements for the preceding few years.
Ask the landlord to confirm that:


(a) these were the statements actually used for pass-
thrus to existing tenants; and


(b) future operating expenses will be calculated the
same way.


Time for revision
Set a time limit for the landlord's revisions to operating expense statements – and make that limit subject to a time of the essence qualifier.


Right to review and challenge
The tenant should have the rights to examine and question the landlord's operating expense calculations. Those rights should survive the termination of the lease. The lease should give the tenant reasonable time to:


(1) notify the landlord it wants to audit expenses;


(2) conduct and complete the audit; and


(3) specify if, & how it contests the landlord's
calculations.


Avoid any schedule that requires the tenant to provide more detail than is reasonable at any particular stage of the process. If the tenant discovers egregious errors, let the tenant reopen expenses from earlier years, even if the time to do so had otherwise expired."



from GlobeSt.com, August 30, 2006


"Many people mistakenly consider brokerage and transaction management one and the same. Some have described transaction management as brokerage on steroids, others call it managed brokerage, but each of these descriptions lacks certain foundational truths. So, what is transaction management?


First, the overarching textbook definition: transaction management is a consistent, repeatable, reportable, measurable process to coordinate multiple transactions in multiple markets and oversee the field execution of real estate deals. Transaction management has 4 dimensions.


First Dimension: Consistency.
Managing brokerage resources from various real estate firms alone can be difficult. Now imagine taking all the input from these disparate resources and trying to make them look uniform. It is next to impossible. However, it is the job of a transaction manager to provide the client with a consistent process. This requires two things. First, it requires frequent interaction between the transaction manager and the client to define what's needed. More important, providing a consistent process requires the use of standardized management tools.
These tools can include formal broker-engagement letters, standard listing agreements and scope-of-services templates, uniform market report formats and financial analyses. With these tools, the transaction manager can ensure that the field broker hits the ground running.
Moreover, the TM [Transaction Manager] can then continuously improve the process in place, making sure it remains viable for the client.


Second Dimension: Coordination.
Accountability for successful transaction management does not lie solely with the TM. Rather, it requires the management and oversight of several key contributors including the client corporate real estate department, the end user, legal department and field broker, among others. No matter how tactically astute a TM is, it is ultimately his ability to herd the cats that sets him apart from the also-rans. It is more than a typical project management mentality, and in this case you have to coordinate the efforts of individuals for whom real estate is akin to visiting the dentist.


Third Dimension: Communication.
It is the value you bring to the client that will make or break you as a service provider. However, communicating value has two parts. The first is measuring your performance against a set of criteria. Most service providers do this reasonably well and with good reason; their bonuses are tied to it. Where most service providers miss the mark is in giving their clients proof of value that they can communicate upward to their senior management. To be sure, there is a lot of self-promotion when selling the service but relatively little done on a daily basis after the account has been won. Without it the old saying, "what have you done for me lately?" comes into play.


Fourth Dimension: Time.
To make effective use of your time, you need to consider the service provider's professionalism. Transaction management is about hiring the right team with the right resources and the ability to free up your time for more strategic concerns.


When evaluating transaction management services, consider whether their process will save you time or require you to micromanage their efforts.
Consider whether the designation of responsibilities is clear or whether you'll be called in too often to arbitrate a disagreement among the provider, the broker and your own staff. Consider whether the service provider is willing to live or die by the ability to save you time and money."
For more information see: www.houstonrealtyadvisors.net or www.houstonrealtyadvisor.com