Determining
Proportionate Share

Do you like that pretty fountain out there in the parking lot?
You better, because you’re going to be chipping-in one day to fix it
when a member of the local gentry drops a box of Fizzies in it.

The most misunderstood proportion of proportionate share is that it does not necessarily mean an equal share of something; it is an adjusted percentage that has been negotiated and agreed upon between two or more parties, but it has little to do with anything being equal or fair.

All of that being said; the quickest - and therefore most common - method used today to determine a tenant’s proportionate share in a multi-tenant building or complex, is to simply use the gross square footage of the building or shopping center (the denominator) and dividing it by the gross square footage of a particular space (the numerator). The resulting fraction, or percentage, is often called a tenant’s “proportionate share”.

Almost always included in a lease agreement, this percentage is used as the benchmark for determining how much additional rent a tenant will reimburse the landlord for maintaining and operating the building or buildings*.

*Unless you entered into a “gross lease” with your landlord, any and all costs associated with the operation, upkeep and maintenance of a building or shopping center (property taxes, utilities and maintenance for the common areas, etc) are usually passed through to the tenants (hence the name),
many times with a management fee added in for good measure.

Without going through a discussion of common area charges do’s and don’ts (that’s a subject for another article), let’s just say that we could be talking about a potentially large chunk of change that you will have to pay the landlord periodically (these expenses are usually estimated by the landlord or management company and charged to the tenants usually on a monthly or quarterly basis, but that all depends upon what’s written in the lease).

So…what’s wrong with just agreeing to pay 10% of the CAM, taxes or insurance if your space is going to be 10% of a building? After all, on the surface, it does seem fair. Well, it is…as long as you actually use 10% of the complex’s resources, of course...

 

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Example

Today, there are four 2,500 square foot similar retail uses in the same 10,000 square foot building.

That balance changes one day when a 24 hour convenience store takes over the corner unit.
Now, instead of having a dry-goods retail store operating next to you from 9:00 AM to say, 9:00 PM;
you now have a 24 hour use, driving traffic 24 hours a day.

Although the property's taxes may or may not increase, the newer use would certainly require at least the parking lot lights to burn longer (thereby increasing the electric bill) and it would most-likely place more wear and tear on the parking lot requiring more patching, repaving, increasing litter, etc.

If, when you first cut your lease, you were paying 25% of a $32,000 electric bill (your share being $8,000) this new use has created an increase in demand and, in effect, increased your share

You could be subsidizing this new tenant’s balance sheet to the tune of $2,000 per year or more.

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