Rent rolls are a fundamental part of your lease, serving as a crucial financial data point and forming the backbone of your lease agreement. Having a clear understanding of your rent structure is essential. It not only helps you negotiate renewals more effectively but also allows you to identify potential inaccuracies in rent calculations, which can lead to significant savings. Moreover, a thorough knowledge of your rent roll empowers you to make more informed real estate decisions.
In this week’s blog, we dive into the key aspects of the rent roll that every tenant and landlord should know. If you can answer these two questions, you can make an informed decision when it comes to your rent roll.
What is your rent structure?
Most tenants know their rent structure, but what about the details? One critical element to understand is the escalation clause in your lease. What is your rent escalation linked to? It could be a straightforward increase by a set amount or percentage, it might track an economic indicator like the Consumer Price Index (CPI), or it could be tied to your revenue, such as a percentage of sales—a common structure in retail leases. Knowing the specifics of your escalation clause is essential for evaluating the long-term feasibility of your lease and making informed business decisions.
What constitutes your Common Area Maintenance (CAM) charges?
If your lease is a net lease, Common Area Maintenance (CAM) charges will be a key part of your rent roll. CAM charges often include multiple line items and complex calculations, which can lead to errors and varied interpretations. It’s essential to understand the specific components of your CAM charges and how they’re calculated according to your lease. For instance, if you moved into a partially occupied building, how are CAM expenses divided among existing tenants until the building reaches full occupancy? And as new tenants move in, how will this impact your CAM charges? Knowing the answers to these questions can help you avoid unexpected costs and manage expenses effectively.
In rent-roll calculations, the responsibility often falls on tenants to spot and report any errors to the landlord. This makes it essential for tenants to closely review core rent roll components, including rent escalation calculations and CAM charge allocations. Overlooking errors can lead to incorrect base calculations that roll over into the next lease year, potentially costing tenants a significant amount. Additionally, most leases specify a timeframe for reporting discrepancies; if missed, the tenant’s silence may be taken as acceptance of the charges. Staying vigilant about these details can help prevent costly mistakes and ensure accurate billing. This is why it is so important to choose a trusted provider to handle your lease administration.
In conclusion, you can avoid costly issues by maintaining clear, concise, and accurate lease abstracts that simplify complex lease terms without losing their essence. Well-prepared lease abstracts enhance your understanding of the rent roll and related components. Additionally, conducting regular lease audits and maintaining a thorough lease administration process are crucial. These practices help you identify discrepancies early and take timely action, ensuring accurate lease management and cost control.
