Proportionate Share


Determining a tenant's true proportionate share is an important, possibly money-saving calculation when negotiating your lease. What can you do to make sure that you only pay your fair share? Well, first verify that all of the numbers being used in the calculations (the numerator - which is the size of your space; and denominator - the gross square footage of the building or shopping center) is accurately represented in your lease. Unfortunately, many landlords and brokers are notorious for rounding things up "It just makes it easier", so putting a finer point on the pencil and determining the exact square footage of the spaces can save you hundreds, if not thousands of dollars a year in unnecessary charges.

Next, as in the case mentioned before, take a look at the other tenants in the building (or center) and try to determine if they might use much more of the common areas resources beyond normal. The optimum situation would be both for your space and the common areas to be each separately metered for all utilities (gas, water, electric, sewer, etc). It's simply the best way for you to understand and control your own utility usage and to be able to judge the accuracy of any charges your landlord sends you way. If during your conversations with the landlord or management company you get a less than specific (or satisfactory) answer on just how these charges are calculated and/or billed, you may be walking into a bad situation where you'll most likely find yourself overpaying.

Finally, depending upon your situation, you may want to consider discussing these additional points with your attorney to make sure that the proportionate share that you pay is actually your fair and equal share:

  • Some pad site uses, like banks and freestanding fast food restaurants, usually maintain their own buildings and dedicated parking lots.

  • “Outparcels” can sometimes be separately taxed building lots and operating under a “Net Lease”, therefore possibly paying their own insurance and tax bills.

  • Proportionate Share should be addressed separately in the lease articles dealing with taxes, insurance and common area costs.

  • Consider asking for a right to audit and correct any miscalculations or changes to your proportionate share calculations.

  • Make sure to include any and all pass-through amounts (CAM, Taxes, Insurance, etc.) when running your budgets.

As pointed out in our example, some tenants naturally use more gas, water and electric and can place more demands on the common areas than other tents, but don’t get too carried away with it (“that guy’s open three hours a week longer than I am!”) but do keep an eye on your neighbors – new and old – to make sure that they are paying their fair share.

However, if you feel there is a large disparity, bring it up to the landlord when negotiating or re-negotiating your lease (but always remember: never take every crumb off the table). In its truest form, an accurate proportionate share would take each tenant’s demands into consideration to determine who exactly uses what and what percentage of the charge they actually owe, but that rarely happens in the real world because few tenants ever take the time to identify and negotiate what’s fair…to them.

Paying attention to these details can translate into real monthly savings for you and your business.

Happy hunting…

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