By Michica N. Guillory, GRI
C.S. Lewis wrote “experience is the most brutal of teachers.” But why learn the hard way when you can benefit from the mistakes of others? Here are five costly mistakes I’ve witnessed over my 18-year career in leasing and property management. I’ve concealed the names to protect the not-so-innocent offenders, but every word is true. Helping landlords avoid these pitfalls can save them money and headaches!
1. “Disaster Years” as Base Years
Using a base year to calculate operating expenses is simple. First, establish how much it costs to operate a property in a specified year – the base year. In subsequent years, the tenant pays its pro rata share of operating costs in excess of the base year’s costs. Got it? Great! In my neck of the woods, Houston’s suffered two straight years of disasters: the 2016 Tax
Day Floods and Hurricane Harvey in 2017. If a tenant is "slick" enough to use one of them as a base year and the landlord had high expenses restoring the property, expenses may never be recovered from that tenant. One of my largest tenants was a global oilfield services firm occupying multiple full floors. During renewal negotiations, they’d slipped a disaster year past the landlord and leasing director. They didn’t pay an OpEx bill for years! Here’s a tip: If a disaster happens after a base year has been selected, build in a clause allowing for expense recovery utilizing a different year.