Question to shopping center landlords: When roof or HVAC maintenance is not Tenant’s responsibility, how do these costs get booked? As pass-throughs?
Thank you!
[{"id": "h0l0ml4", "text": "If it\u2019s a maintenance item, LLs will run it through CAM budget. Replacement is a capital improvement project that should not be funded by tenants.", "replies": [{"id": "h0l9o5r", "text": "You can amortize through CAM though right?", "replies": [{"id": "h0mm9zj", "text": "I\u2019ve seen it done but it depends on the lease", "replies": [], "depth": 3}, {"id": "h0vs6vh", "text": "Yes, depending on how the lease\u2019s operating expenses provision is written. This requires specific wording so general lease language doesn\u2019t usually include this. \n\nBut you would amortize over the useful life of the asset to the specific expense pool the HVAC unit services.", "replies": [], "depth": 3}], "depth": 2}, {"id": "h0n5onz", "text": "But isnt HVAC maintenance suite specific?", "replies": [{"id": "h0nd53d", "text": "Generally, yes, but that\u2019s not how maintenance budgets work. LLs don\u2019t allocate $x per suite. You asked how it is handled if it\u2019s NOT the Tenant\u2019s responsibility. That is how it\u2019s handled.", "replies": [{"id": "h0p65o3", "text": "what size projects do you see this type of maintenance being expensed to cam out of curiosity?  Roof repairs and hvac seem to fall either on tenant or landlord in most of my experience.  Just curious.  On tenant rep side how do you even do due diligence on this?  You can inspect your unit's stuff if you are responsible prior to lease signing or in accordance with the lease and landlord delivering in good condition and make sure its ok, I have never really seen anyone attempt to push an entire centers potentially deferred maint on tenants.  What is the expectation there?  if you want to lease say 3k sf in a center you need to inspect the entire roof and all hvac units for the entire center?", "replies": [{"id": "h0pctb1", "text": "In reality, it's likely not coming out of the maintenance budget unless it's a minor to moderate repair that is clearly the responsibility of the LL. I viewed the OP as a very hypothetical \"what if\" scenario and answered as such. \n\nFrom the Developer/LL of multi-tenant retail side, I've never seen the roof be tenant responsibility aside from issues arising from penetrations for tenant-specific items an exhaust hood or the like. HVAC is a bad example because it's the opposite - it is virtually always on the tenant. \n\nFor DD, other than proper inspection, you could try to incorporate language into the lease to hedge against HVAC failure within X years, but likely tough to obtain unless you're repping a national. Roof replacement is a capital improvement project, so it's not a maintenance item. \n\nAll of the above has the giant caveat of every LL and lease is different.", "replies": [{"id": "h0pkk1i", "text": "when you talk about maint budget are you implying all your maint budget goes back through cam though?  That is the part I am confused on.\n\nSo say some seams fail on the roof and roofer goes out and reglues them or whatever.  In your leases where ll is responsible for roof/structure, you put that in cam and are getting reimbursed? I feel like if I wanted to lease 3k sf or whatever in a 45k sf 30 year old center and they told me they were going to do that we'd just laugh and move on.  \n\nIts the same for structure I'd think.  If the slab cracks and starts moving or say the sewer gets tree roots in it and needs bladed, you are camming that?", "replies": [{"id": "h0pnwz1", "text": "Of course not, but I will tell you that LLs run things through maintenance that really aren't maintenance or tenant responsibility. They aren't going to sneakily bill the tenant for a $50k reroof, but a $1,200 roof patch? Absolutely running through CAM.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h0p5crv", "text": "This kind of depends on the size and complexity of the property.  If you have a regional shopping center you may get away with more here on pass thrus.  \n\nIf you are expecting some random great clips franchise to eat a huge cam bump because the 1500 sf chinese restaurant next door needs a bunch of roof repairs or hvac maint that isn't happening most likely.....\n\nMaint pass through are very rare in my experience for smaller tenants and properties.\n\nEven on their own spaces there are commonly caps to these things.\n\nThe landlord eats this a lot of the time.  If it isn't the tenants responsibility then that doesn't mean it just goes to cam.", "replies": [], "depth": 1}, {"id": "h0p726v", "text": "Keep in mind too OP, pass through isn't free.  If everyone else is doing a normal structure and is at 30-40% rent for cam and you are putting tons of random shit through with a difficult lease that makes your cam above market it is going to be tough to get LOI's in the first place then their lawyers and brokers are going to shit all over your leases cam section during review.\n\nI'd suggest asking these questions to brokers and lawyers in your market who are familiar with local custom and have a better understanding of your property", "replies": [], "depth": 1}, {"id": "h0txfsv", "text": "It depends on how the Lease is written and the provisions in the Lease. Standard maintenance is usually covered in CAM/NNN costs and passed thru to tenant (if Lease is written so). Replacement is a capital expense. Again, cost will depend on how the lease is written and potentially the tenants length of lease.", "replies": [], "depth": 1}, {"id": "h0uckx5", "text": "As many have said depends on the lease. We own retail/office and industrial - most are NNN and every item is passed through CAM. CAM is outlined though in every lease and it breaks out what items are annual pass throughs and what repairs are amortized over longer periods - this is building specific", "replies": [], "depth": 1}]