New Lease Question - reserves for replacement roofs and pavement
I am reviewing a new lease, and the landlord is assessing a non-refundable month reserve for roof and pavement replacement.

I understand it is not in my interest to be paying for capital items that improve the property long term, but are not operational or management expenses.

How can I get this replacement excluded in the lease?

I'd rather not pay this if I don't have to.

Thanks
[{"id": "fy1hieg", "text": "In the commercial office leases, I have seen these items get budgeted as part of the OPEX for the year and are typically part of these CAM or OPEX payments. These payments are split up differently so you may want to define how these costs are assessed. For example you would not pay the total cost of a new roof in one year but maybe spread it out over 5 years. If you are not there for five years, then that is on the owner to find a new tenant.", "replies": [{"id": "fy1jqev", "text": "Thank you. It's seeming like its standard as a part of OPEX.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fy1ij10", "text": "If the landlord removed the fee, but raised the rent to reflect that, would you be happy?", "replies": [{"id": "fy1js8b", "text": "No, wouldn't like that option either:-(", "replies": [{"id": "fy1jzdh", "text": "Well, now your just asking for cheaper rent. \n\nI bet the LL will be looking for the same net \u00a3\u20ac$.", "replies": [], "depth": 3}, {"id": "fy1t3u4", "text": "I hate to tell you but they\u2019re going to get it out of you one way or another.", "replies": [{"id": "fy2fn5r", "text": "I hate to admit it, but you're correct!", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fy1ij8d", "text": "Maybe longer than 5 years if this is a reserve. Roofs last ~20 years. Your lease is maybe for 5 do you have an option to renew? That's 10 years or half the roof.\n\nIm in Canada, but I understand that in some parts of the US the smarter landlords will charge for roof replacement as it is amortized and deposit the money in a sinking fund investment (so it grows) while the roof slowly breaks down. \n\nI'd be super curious to know more about this", "replies": [{"id": "fy1jl9z", "text": "Thanks for your response. The lease is 4 years with one 4-year option to renew.", "replies": [{"id": "fy1oeph", "text": "So if you think about that you are going to be there for about half the lifespan of that roof. You are getting the use of the roof, not the landlord.\n\nIn my view, the way that NNN leases work is that they try to get the lease to be an approximation of a simple ground lease (where the tenant constructs the building). In your case, you might be in a multi tennant building, in which case the property manager needs to basically needs to structure the site in a way where the tenants work together with property management to make the dea appealr 'like a ground lease' to the landlord or asset manager.\n\nIt sounds like you have a deal in the works with an organized group, this works in your favor when it comes time for that roof replacement.\n\nI'm going to also add, sometimes OPEX is negotiable, but basically if I was in a lease negotiation and the tenant had an issue with OPEX, I would probably say, ok you pay for it directly when it is due, except recently I had a tenant who basically bailed on their lease right before property taxes were due, so I wasn't able to collect those. Never going to do that again.....\nThe other option would be to have a gross lease, but I would have to charge more to anticipate all of the future operating expenses under the lease, plus a markup on the estimate of probably 20%, making this more expensive for the tenant.\n\nWhen in doubt, have a commercial realtor represent you in your lease negotiation.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fy1k2nh", "text": "Curious if it\u2019s a percentage of rent or a flat fee?", "replies": [{"id": "fy1k4tn", "text": "It's a flat fee per sq.ft", "replies": [{"id": "fy1kejc", "text": "Well, one positive is if rents increase, hopefully the fee does not. But curious if the price per square is below market or above, etc.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fy1t30r", "text": "Just strike what you don\u2019t like when you turn comments", "replies": [], "depth": 1}, {"id": "fy221ym", "text": "All costs are operational costs , be it CapEx or Opex.Capex adds assets to the balance sheet,Opex is expensed out in the same year in the income statement.Either way you have to pay for it as rightly pointed out elsewhere in the thread.Are you in a position to negotiate better terms,ie, is your leased area significant for the landlord?Is your requirement of commercial space more than the landlord's desire to have low vacancy or is it vice versa?It's a game,and the dice is loaded towards whoever's needs are more.Please examine your Common Area Maintenance Agreement for more clarity on inclusions and exclusions.", "replies": [{"id": "fy2fkle", "text": "Thanks! I will leave this uncontested and agree to the terms.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fy2fotg", "text": "Did you have an LOI prior to the lease being drafted that mentioned the fee?  If not, just cross it out and send it back. Everything is negotiable.", "replies": [], "depth": 1}, {"id": "fy2mz79", "text": "Rent + reserves shouldn't be more than market rent.   Since the LL wants to carve out for reserves, you might be able to call them out if they set the reserves too high \\[i.e. think about what type of roof it is; age; climate; roof warranties; maintenance programs; etc.  same for the paving\\].  Useful life is just a guideline. Landlords replace roofs/paving based on their condition, not solely bc they reach a certain age.", "replies": [{"id": "fy5t7qp", "text": "Thank you. This is very helpful.", "replies": [], "depth": 2}], "depth": 1}]