Lease Audit – Grossing Up Operating Expenses

In the operating expense provisions of an office lease you may come across wording that allows the landlord to “gross up operating costs which vary with the use and occupancy of the rentable premises in the Centre as if the property were 97% occupied and operational.”

These costs are generally cleaning, waste removal, utilities and management fees if based on a % of operating costs. Leases allow these costs to be grossed up to a range of 95% to 100% occupancy.

On the surface, allowing the landlord to charge for more expense than they incur seems absurd. However, the concept is fair to the landlord – yes, you read that right – and fair to the tenant.
An extreme examplele to illullullustrate the point:
Assume there are two tenants in a 100,000 sq. ft. office building, Tenant A and Tenant B, who occupy 50% of the space each. The cleaning costs are $1 per sq. ft. per annum, or $100,000. Cleaning contracts allow vacancy credits to be given to the landlord if tenant(s) vacate the premises.

Now let’s say Tenant B vacates the premises for a full year, reducing cleaning costs to $50,000. Without a gross up, Tenant A would now pay 50% of $50,000, equalling $25,000, even though they are responsible for 100% of the cost. The landlord would be out of pocket $25,000. Grossing up the cleaning expense to 100% allows the landlord to recover all of its costs.

Lost in translalation
Where this concept often breaks down is in the calculations used by landlord administrative staff. We have seen situations where incorrect calculations have resulted in tenants paying more on those variable expense items than if the Centre were 100% occupied.
For example, occupancy has no bearing on labour or utilities for the lobby, elevators, outside areas, or other common areas. Even vacant leaseable premises require a minimum of heat in the winter.
A Colliers audit on a 7,000 s.f. office space in Ottawa netted a $32,000 recovery for our client. The landlord had applied gross up calculations to the utilities on vacant space. However, they had continued to cool, heat and light the vacant premises as though they were fully occupied in order to make the marketing and showing of the space more appealing.

Finally, vacant space rarely remains so for a full year and appropriate calculations are required to ensure the gross up is applied only to the time the space was vacant.

REMEDY
Have the ‘right to audit’ written into the lease agreement in order to ensure that the grossing up is done correctly. Clear, concise lease language such as the following is also essential:
“The landlord is entitled to gross up those items of operating costs which vary with the use and occupancy of the rentable premises in the Centre as if the Centre were (% rate to be negotiated) occupied and operational. For greater certainty the variable costs are cleaning and utilities. In no event shall the tenant’s proportionate share of the variable expenses be greater that would be payable if the property had been fully rented.”

For Additional Information Contact:
Frank Iannarilli
Director, Lease Audit
416.620-2876
frank.iannarilli@colliers.com

Sid Lee Toronto Offices

Solutia SDO Head Office, Toronto – Video Testimonial

Another great deal done with http://solutia.ca/ – Get more out of your agent and your space!

Solutia SDO is an independent management consulting firm, owned and operated by seasoned professionals. We provide our clients with the skills, expertise and services offered by large consulting firms, but with one major difference — you can expect a better return on your investment.

What’s your commercial real estate agent ever done for you?

Toronto Financial Core Office Space for Lease – 2000 sf – March 2012

OfficeSearchToronto.com helps tenants determine the best office space for their budget from one of the largest database of available listings online. For a free survey call us at 416-643-3713 or E-mail Us Here or Contact Us!

You can also try searching for your own space at OfficeZilla.ca!

Apple To Open flagship store in Toronto at 1 Bloor West?

Stollery’s at the southwest corner of Yonge and Bloor streets

If this is true it would really shake up the market.  How much would Apple pay for such an amazing flagship store?

Could it end up looking like the store in New York below?

Digital Nomads in Toronto find a new home

One of the pillars of coworking is collaboration, and the Coworking Toronto collective is tossing away notions of competition and working together.

The first tool to facilitate this is the Coworking Toronto Passport Program which helps freelancers and digital nomads to try out many spaces and through their discovery they just might find somewhere they want to call home.

The passport gets the buyer into seven spaces for one trial day each. Trial days at participating spaces usually range from $20 to $40, with an average of $25. The purchase price is $75 and is valid from Mar 1 to Nov 30, 2012. Passports can be purchased at participating spaces or online at http://coworkingtoronto.ca/passport.

Rachel Young, Co-founder of Camaraderie Coworking Inc said, “This is an incredible way to discover some of the coworking spaces in Toronto and see how different each one can be. We want to offer visitors a way to explore without worrying about commitment, and we’re confident that through this discovery process some will be able to find a space they want to take up a resident membership, grow their business, and interact with some great existing members.”

The spaces participating in this inaugural program are:
• Camaraderie (Adelaide and Church)
• Centre for Social Innovation – Annex (Bloor and Bathurst)
• Centre for Social Innovation – Spadina (Queen and Spadina)
• Coworkative (Stoufville and Yonge)
• Foundery (Dundas and Bathurst)
• Hackernest (Bloor and Lansdowne)
• Park & Co (King and Dufferin)

The number of coworking spaces has been doubling worldwide since 2003, according to Deskmag’s Global Coworking Survey, reaching 1,300 last month. Toronto had just four spaces that self-identified as coworking at the beginning of 2011 and now has 13 just a year later.

Funds from this program go directly to the marketing budget for Coworking Toronto. Participating spaces are not receiving any compensation from the program. Future marketing efforts may include community outreach, participation in key tradeshows, sponsoring events, and other initiatives.

This is the first program of its kind for the coworking industry, and Coworking Toronto will be monitoring the program closely throughout the year to be able to provide metrics for future projects and other regional collectives.

PASSPORT

Live Work Space – $2 million – 4,500 sf – 686 Richmond Street West

ADDRESS: 686 Richmond Street West

NEIGHBOURHOOD: Niagara

AGENT: Lee Taylor and Donald Mulholland, Bosley Real Estate Ltd., Brokerage

PRICE: $2,095,000

THE PLACE: Unlike many of the boldly emblazoned buildings scattered throughout the city, this off-the-beaten-track freehold would go unnoticed were it not for the large countryside mural adorning the north wall. Divided into three storeys, the “Sunflower Building” consists of a lower-level workshop with a large storage area, his-and-hers bathrooms and a kitchen, while a 1,500-square-foot main floor office includes a reception area, a boardroom and workstations for eight. Upstairs is a lofty three-bedroom, two-bath apartment with a rooftop deck.

THE STORY: Mystery seems to surround the namesake mural on this otherwise ordinary building. Originally a mannequin warehouse, the building has also served as an art gallery and most recently a woodwork shop, where the construction of a 17-foot mahogany boat forced renovations that included installing a trap door in the main floor boardroom and widening the doorway on the side of the building to get the bloody thing out. Though the mural is signed, not much else is known about the idyllic scene (perhaps it’s an ode to the sunflower woman).

THE IDEAL TENANT: The combined workshop and workspace would be ideal for architects, designers, craftsmen or artists in need of a sizable studio.

THE DETAILS:
• $2,095,000
• $15,640 in combined commercial and residential taxes (2011)
• 4,500 square feet
• 1,500-square-foot lower level (with workshop, two bathrooms, storage and kitchen)
• 1,500-square-foot commercial space (with reception, boardroom, two offices and five built-in workstations)
• 1,500-square-foot three-bedroom, two-bath apartment
• 4-car tandem parking
• 3 storeys
• 1 rooftop patio
• 1 original hand-painted mural

Lee’s Palace artist does mural in BizMedia’s office space

If you haven’t seen The BizMedia’s office space at 119 Spadina Avenue you should check it out.  They’ve been doing some really creative things.  Check out this video of how they decided to decorate their office space.

Market Street revitalization pushes forward

Full article – Robyn Urback – Blog TO

Plans to update and improve Market Street — the thoroughfare that connects Front and The Esplanade on the south side of the St. Lawrence Market — continue to trudge on, though it sounds like a year-round pedestrian-only space isn’t in the cards.

When plans were first announced in 2010, it seemed as though private developer Woodcliffe Properties was working towards creating a space that would be free from vehicular traffic. Paul Oberman was the president of Woodcliffe at the time, a man well-known for his revitalization projects throughout Toronto, including the old North Toronto CPR Station / LCBO flagship store. Oberman died tragically in a plane crash in March 2011, and a movement later spawned to rename Market Street in his honour.

Yonge and Bloor Toronto – Office Space for Lease – February 2012

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