Here is a last real life case (among many others) that illustrates the facts alleged in my series of blogs on landlord’s fake measurements. Too often landlords manage to trick tenants over several years by deliberately using fake leasable areas.
Case #3: I cheat from every angles
The tenant’s premises are located in one of the largest office buildings in Montreal. For many years, the lessor used X sq.ft. as the value for the total leasable area of the building (TLAB) to calculate the proportionate share of the tenant’s additional rent. Comparing this area with the TLAB on the website of the lessor, I noticed that the latter was much greater than X sq.ft. The lessor was asked to prove his TLAB number.
Of course, the lessor played the “I do not have a certificate of measurement” game. With great reluctance, he finally provided his rent roll record showing the areas of each of the building’s premises. He also provided another accounting register which contained different areas for many of the exactly same premises.
Later on during the audit, I noticed that the lessor had paid an invoice to an external firm to perform an appraisal of the building. This report was commissioned to obtain financing on the building. The landlord had taken the bold step to include the fees paid for the appraisal in the common area costs of the building, which is clearly prohibited under the vast majority of leases, including that of my customer. I insisted to have a look at it on the grounds that the costs of the appraisal had been billed to my client. After long deliberations and resistance, the landlord eventually gave me access to the report to find out that the TLAB used by the appraiser was also much higher than X sq.ft.
Combining the information gathered from the two non-concordant accounting registers and the appraisal report, I was able to determine a credible TLAB that turned out to be 26,800 square feet greater than the area used by the lessor. Consequently, the client’s proportionate share had historically been overvalued by 0.31%. For the last 3 years, this small difference of less than 1% represented nearly $ 190,000 of additional rent paid in excess by the tenant.
The lease audit revealed that the lessor was at fault on several levels
- Tenants’ rent was always charged on the area indicated in the leases, although this area was often greater than the actual leasable area of the premises;
- For the purpose of calculating the TLAB, the landlord always used, for each of the individual premises, the lesser of the actual leasable area and the area indicated in the lease;
- The area of the premises for which the leases did not provide for the possibility of recovering common area costs (gross leases) was excluded from the calculation of the TLAB;
- Like the landlord’s inconsistent accounting records, the compilation of the TLAB was fraught with methodological and calculation errors;
- The professional fees paid for the appraisal report had been mischievously included in the building recoverable operating costs.
Landlord’s fake measurements – What a shame!!!
Throughout the 6 blogs dealing with manipulations of rentable areas, several shenanigans made by landlords to cheat tenants have been highlighted. All tenants of office, industrial or retail premises should contact us to ensure that they are not victims of such shameful acts!!!
