Don’t Base Proportionate Share on Center’s Gross “Leased” Area

January 17, 2013
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Q: I rent space for my small clothing store inside of a shopping center. I’m two years into a five-year lease that seemed to be a good deal at first. But recently, I found out that a much larger store has common area maintenance (CAM) costs that are about half of what I pay. I was under the impression that those costs were based on the size of our store. Is that not true?

A: Many shopping center leases require you to pay a “proportionate share” of the owner’s CAM costs. Like many tenants, you probably expect your proportionate share to be computed based on your store’s size in relation to the center’s size. But if you don’t carefully review how the lease lets the owner compute the proportionate share, you might discover too late that you’re responsible for a greater share of CAM costs than you anticipated.

If the lease lets the owner compute your proportionate share based on a fraction that uses a lower denominator, it would result in a higher percentage that you must pay. The numerator of that fraction is your space’s gross leasable area—that is, the amount of floor space available to be leased. But the denominator of that fraction is the gross leased area—the amount of floor space already leased, instead of the entire gross area, whether leased or not. This fraction could lead to an extremely unfair result—that is, making you responsible for most or all of the CAM costs if the center has stores that aren’t leased, even if you’re renting a relatively small store. For example, if the center’s gross leasable area is 200,000 square feet, and your 25,000-square-foot store is the only one leased so far, your proportionate share of CAM costs would equal 100 percent (25,000 ÷ 25,000 x 100 percent) of the CAM costs.

To avoid that unfair result, one solution is to change “leased” to “leasable”—that is, change the lease language describing the denominator of the proportionate share fraction to the center’s gross “leasable”—not “leased”—area of the center. That way, it doesn’t matter whether any other stores are leased; your proportionate share will better reflect your store’s size in relation to the center’s size. For example, if you use the same facts as in the previous example, but this time the denominator in the proportionate share fraction is the center’s gross leasable area of 200,000 square feet, your proportionate share would equal only 12.5 percent (25,000 ÷ 200,000 x 100 percent) of the CAM costs.