Snow removal question on commercial property - Canada
I have a 5 unit commercial property that we have always looked after the snow removal for tenants. (building was 2 unit before 2020) however now the need for more urgent snow removal is an increasing cost during the Winter. How do others manage this cost? Pass it onto tenants? Monthly maintenance fee?  I figure we will have to slowing change this on lease renewals. Any advise apricated.
[{"id": "ht1t3gc", "text": "I'm not from Canada, but I would recommend covering the costs. It should help you retain tenants. If not, do a 50/50 split. Just my 2 cents.", "replies": [{"id": "ht1yi58", "text": "The big problem with paying for this is that it\u2019s a widely variable expense. One year you could have no snow and the next you could have to clear parking lots 10 times, which adds up quickly. For some owners, this may not be an issue, but if you need to maximize NOI you need to keep that expense low/non existent and consistent.\n\nThis can play a more detrimental role if you go to sell the property. A prudent buyer will see that the expenses aren\u2019t predictable and knows they will have to go through the headache of getting all the leases NNN or just dealing with a less reliable income stream. With that being the case they will typically value the property lower as the income the investment is predicated upon isn\u2019t consistently \u201cguaranteed\u201d", "replies": [{"id": "ht20r2k", "text": "That's a fair assessment.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ht1tjyp", "text": "In the U.S. this is typically on the owner for any MFR property. I think if you try and push the cost on the tenants, you\u2019ll be at a competitive disadvantage. It\u2019s just a cost of doing business. Make sure you\u2019re keeping all your units at market rate to best cover the expense.", "replies": [], "depth": 1}, {"id": "ht1vjlu", "text": "If it isn\u2019t apart of your CAMs already it probably should be, assuming these are net leases.", "replies": [], "depth": 1}, {"id": "ht1vk3j", "text": "It's usually covered in the tenants CAM fees.", "replies": [], "depth": 1}, {"id": "ht1xm1j", "text": "I\u2019m not sure if you have local rules but what does your lease say? It should be very clear whether this is a tenant or LL cost. \n\nIf the lease is silent, is there a category of duties that snow falls under?", "replies": [], "depth": 1}, {"id": "ht1xmp5", "text": "Is this a multi-family property or office/industrial/retail property?\n\nIf it\u2019s multi family, it may be more challenging to get reimbursed for those expenses.\n\nIf it\u2019s retail/industrial/office/etc. I would suggest waiting until your leases come up and as part of the negotiations get the Tenants to pay their pro rata share of NNN expenses. If you already know this, just ignore the rest of this paragraph, but NNNs typically include; Taxes, Property Insurance &amp; Common Area Maintenance (CAM), which sometimes includes items like roof, structure, HVAC. Say you have a 10,000 sf building and each tenant occupies 2,000 sf. Each Tenant occupies 20% of the building and therefore pays 20% of expenses (their pro rata share). This is typically billed monthly and labeled as \u201cAdditional Rent\u201d in the lease agreement. Since you only have past years expenses to go off of, these are considered estimated expenses. At the end of the year you\u2019ll compare those estimated expenses with your actual incurred expenses and credit/debit Tenant with the difference. Say 2021 expenses were $10,000 ($1/sf) and they rose to $11,000 in 2022. At the end of 2022 you would send out a reconciliation letter to those Tenants including a breakdown of expenses and they would then each owe you an extra $200 as additional rent. The same is true if expenses decrease, however you would then owe your Tenants the difference.\n\nOne piece of advice on the new leases as they roll over, there will be a period of time where some Tenants will be NNN and others won\u2019t be paying those expenses so budget accordingly when making pro formas and use your lease expirations as a reference.\n\nCAM covers a wide range of expenses, so just be sure your lease explicitly states what is covered under CAM. As a Landlord you\u2019d typically at least want Parking lot repairs/maintenance, snow removal (not so important in say Arizona, can be very expensive in the Midwest or North), landscaping/mowing, common area lighting, sewage (if there is shared interior common area such as an office building with shared space and restrooms), etc.\n\nNot legal advice, but I am a commercial broker\n\nHope this was helpful.", "replies": [{"id": "ht20748", "text": "Thank you for the detailed response! This is very helpful. The building is Office/retail, Currently not charging CAM fees but should work that into new leases when they come due. Well have to cover costs for time being.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ht2bee5", "text": "For my Multifamily properties, I have a clause in the lease that states I will take care of snow removal until the average snowfall for the area for the past 5 year avg and reference some weather thing. If I recall correctly, I think the farmers almanac or something (I wrote that least addendum 8 years ago) and any costs beyond that are passed through to the tenant. It was becoming too volatile and killed my NOI on some smaller unit properties. I haven\u2019t seen anyone else do this but I recommend it. When people see average they don\u2019t seem to think of your property at any disadvantage to others but those wicked years where we get beat up, this clause is a lifesaver. \n\nFor my office, part of CAM base year so usually get partial increasing reimbursements each year. \n\nFor my retail, not my problem.", "replies": [], "depth": 1}, {"id": "ht5svc5", "text": "https://youtu.be/LSdQh-B3lJs", "replies": [], "depth": 1}]