USA Law and Practice Contributed by: Richard L. Rosen, Leonard S. Salis and Dennison Marzocco, Rosen Karol Salis PLLC
Some leases utilise so-called “baseball arbitra - tion” where the landlord and tenant each submit their evidence, which may include an “expert’s report” , and its “number” as to what the rent should be; the arbitrator selects one side’s number as the “fair market” rent, as opposed to awarding “compromise” between the two pro - posed numbers. Utilising “baseball arbitration” incentivises the parties to be reasonable or risk losing the arbitration. The lease may authorise the arbitrator to award attorneys’ fees, expert fees and costs to the successful party in the arbitration. 6.7 Payment of VAT No states in the USA charge value-added tax (VAT) on rent. However, certain local jurisdictions impose sales or occupancy taxes on base rents, particularly if the lease exceeds a certain length of time. 6.8 Costs Payable by a Tenant at the Start of a Lease When signing a commercial lease, the tenant usually pays the landlord the first month’s rent and a security deposit. This deposit serves as “security” for the landlord in case the tenant defaults on payments that are due under the lease or damages the property without repair - ing it. The deposit amount is usually negotiable, but not always, and it often ranges between two to six times the monthly base rent. The security provisions may be negotiated in various ways, so that (for example) the security could increase as rent increases over the term, or, conversely, the amount of the security could decrease as time passes. 6.9 Payment of Maintenance and Repair In many commercial leases, landlords maintain common areas such as lobbies, parking lots (repairs, snow removal) and gardens (landscap -
ing), and charge Common Area Maintenance (CAM) fees to tenants, based on their propor - tional share of the total leasable space. However, some leases include these CAM expenses in the tenants’ base rent. 6.10 Payment of Utilities and Telecommunications Most commercial leases provide that the tenant is responsible for arranging and paying for its utilities and telecommunications services (other than for water, for which the landlord may bill the tenant based on the tenant’s usage of water as read by “meter” ). Usually, most utility costs for the common areas of the building are billed to the tenants (in addition to the base rent), based on their respective proportionate shares of the total leasable space in the building. 6.11 Payment of Property Taxes There is no standard answer as to who is respon - sible for paying real estate taxes under commer - cial leases, because this will vary depending on the type of commercial lease. However, in many commercial leases, which are “modified gross” leases, tenants are required to pay their “propor- tionate share” of real estate tax increases over a negotiated “base year” as opposed to the full amount of real estate taxes. For example, if the tenant occupies 20% of the total rentable space in the building, the tenant’s proportionate share is 20%, so that, if the increase in taxes over the base year after the tenant’s first year in pos - session (often the first year of the lease) was USD100,000, the tenant’s proportionate share of the real estate taxes would be USD20,000. Notwithstanding the above, in many “net leases” (eg, “absolute” leases, “triple net” leases, “dou- ble net” leases and “single net” leases), the tenant is obligated to pay all of the real estate taxes, whereas the landlord is responsible for paying some of the other operating expenses,
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