Additional Rent

Why did the TMI go up in my commercial real estate lease?

T.M.I. (also known as CAM and additional rent) is a common feature in a commercial real estate lease and it represents the expenses for the property. Sometimes when tenants see this figure in their lease they assume it's a fixed number throughout the term, but it's not, and it can't be.

Because TMI represents taxes, maintenance, and insurance, a year to year change in any of those expenses can have an impact on the TMI rate you pay. For example, it's widely known that property taxes steadily increase 

What expenses can be used in TMI, CAM, or Additional Rent in a commercial real estate lease?

What should be used as a TMI expense is dependent upon how the lease is written, but, the vast majority of the time I write triple net leases and I know most commercial and industrial landlords and practitioners prefer triple net leases where they can be applied, The list below is based on a triple net scenario and isn’t limited to what is listed:

1) Landscaping - The property needs to look well maintained to make a good first impression in a business situation. Lawn cutting, gardening, weeding, tree and bush trimming, litter pick up, and so on can be a landscaping expense.

2) Snow Removal - If you live in a province or state that gets snow, snow removal contracts are a necessity for commercial and industrial properties to ensure businesses and customers have a place to park. Salting and Sanding also falls into this category.

3) Parking Lot Repairs - Parking lots function and look best when the pavement is smooth and free of potholes.

4) Roof Repairs and Maintenance - There are various things that can cause a leak in the roof but leaks tend to occur most towards the end of the roof life. Fortunately repairs can be made and the roof can often be functional for years longer with proper maintenance. There will reach a point where repairs won’t work and a full replacement will be necessary.

5) HVAC Maintenance and Repairs - To ensure the longest life and most efficiency of your HVAC units you should have a regular maintenance contract. A few visits a year from an HVAC technician to keep the unit clean and running smoothly is a wise idea.

6) Outdoor and Common Area Lighting Costs - Tenant’s and Customers definitely appreciate it when coming and going during darker hours of the day, and, having a lit building is a bonus security feature.

7) Property Management and Administration Costs - Property management takes time and money. It would be rare to see management fees higher than 15% of the property expenses but this depends on the landlord and management company.

8) Elevator Maintenance - Elevators require monthly maintenance contracts to remain operation.

9) Waste Removal - If you have common waste, recycling, or compost bins for tenant use.

10) Outdoor/Common Walkways, Ramps, or Stairs - Need to be maintained to code for safety.

11) Fire Prevention - For buildings with sprinkler systems, common area alarms/detectors, these are items that have maintenance costs. Depending on the situation, most times tenant’s would have alarms/detectors in their own units at their own expense.

12) Security Systems - For common areas only. Tenant’s should do their own monitoring for their own unit.

13) Electrical - Maintenance of the electrical room or main transformer.

14) Water - Most units of commercial and industrial buildings don’t have a separate water meter. Water costs should be added to the TMI in this situation, except if there is evidently a tenant that uses more than the others, a fair approach to billing should be made.

15 Insurance - For building and land. Tenant’s should be providing their own content and liability insurance as per the lease.

16) Property Taxes - The largest and most obvious expense.

This list can and will be more extensive in the future, but for now this is a good base guide.

Depending on the wording of your lease you may be able to amortize capital improvements over a longer term. The default wording of my lease allows for roof, HVAC, and parking lot replacement costs to amortized over 10 years but this isn’t used in all documents.

If you’re a client of mine that needs some assistance with best TMI practices I have no problem offering that help. Make sure you work with a Realtor that knows all of the expenses that need to be accounted for.