By: IDA Staff
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Paul Sternberg of Houston Explains Common Area Maintenance in Commercial Leasing
Paul Sternberg of Houston is a well-seasoned realtor. In a triple net commercial lease, the “triple” refers to taxes, insurance, and maintenance. According to Paul Sternberg, an experienced real estate investor, entrepreneur, and businessman from Houston, Texas, while taxes are largely straightforward and insurance is easily calculated, maintenance is often more complicated.
“It’s a big variable,” he says, “and under most triple net leases, a landlord will try to pass on all maintenance expenses to the tenant.”
Houston-based Sternberg reveals that these expenses can include everything from cleaning and repairs to landscaping and snow clearing. “Generally speaking,” he adds, “any such charges will be in addition to the agreed rent, plus taxes and insurance.”
Paul Sternberg of Houston
However, Sternberg goes on to point out that many frequently seen common area maintenance charges should, in fact, be considered general overheads or capital expenses of the landlord. “Administrative fees, for example,” he suggests, “as well as repairs to roofing, plumbing, wiring, electrical or HVAC. These should all be considered capital expenses, paid for by the landlord, not the tenant.”
By Paul Sternberg’s own admission, however, it’s largely dependent on the landlord. “What’s covered and what isn’t is often open to interpretation, so make sure that you understand the situation before signing a lease,” he adds.
So, these areas aside, what common area maintenance charges can a commercial tenant rightly expect to pay? “Cleaning of common areas is one example, as you might imagine, as well as parking lot maintenance and window washing,” says Sternberg.
Sternberg advises trying to minimize future potential common area maintenance charges by coming to some form of the agreement at the start of a new lease.
He suggests negotiating a cap on common area maintenance charge increases, whereby which tenants can budget for their occupancy costs for the entire duration of an agreed lease. “Another good idea is to negotiate a fixed, yearly common area maintenance charge,” says Paul Sternberg. “You may end up paying a little over the odds one year but save big in the next two or three years. It’s about knowing what to expect.”
The Houston native also points out that, even with a fixed charge agreed, exclusions may apply. “For example,” he says, “costs due to the tenant’s negligence; you’ll always be culpable for those, regardless of whether or not a fixed charge has been negotiated.”
“As a tenant,” adds Paul Sternberg, wrapping up, “you also have reasonable rights to examine common area maintenance expenses to ensure that they have been properly handled, which is something else to bear in mind.”