Don't Mistake Missing Bills for Waiver of Charges

Sometimes owners that insist on listing insurance as a CAM cost in the lease forget to bill for it when the time comes. Once they realize their mistake, tenants can get hit with a large, unexpected bill. Don't assume the owner has waived its right to collect old CAM charges simply because it forgot to bill you—investigate the bill thoroughly and take prompt action to dispute it if necessary. Otherwise, you could inadvertently trigger a lease default.

That's what happened to an Ohio tenant in a seminal case. A lease required the tenant to pay each year a pro rata share of CAM costs, including the shopping center's insurance costs. If the tenant didn't pay its share within 10 days after the due date, the owner could terminate the lease. The owner didn't include the center's insurance costs in the tenant's CAM bill. Realizing its mistake, the owner billed the tenant for six years of insurance costs. The tenant didn't pay the bill, even after the owner sent two more demands for payment. The owner then notified the tenant that it was terminating the lease and sued the tenant for nonpayment.

An Ohio appeals court ruled that the tenant had defaulted by not paying the insurance costs and that the owner could terminate the lease. The court pointed out that the lease made the nonpayment of insurance costs a “material”—that is, important—lease violation, entitling the owner to terminate the lease. If the tenant wanted to dispute the owner's bill for insurance costs, the tenant should have taken action—for instance, it could have asked a court to intervene. But the tenant instead “did nothing,” the court noted. The parties to the lease were sophisticated and represented by attorneys, so the tenant knew its rights and obligations, the court said. The tenant would have to suffer the consequences of its failure to act [Stark Commons, Ltd. v. Stein Mart, Inc., December 2004].