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Web Articles
                      Examination of Expenses
         Passed Through to Commercial Tenants

Management Fees

A portion of the landlord’s expenses of operating a commercial
real estate project are often assessed to tenants in the form of
management fees.  Management fees however can be a point
of contention between tenants and landlord.  Management fees
charged by a third party to operate and manage a project are
often predetermined and evidenced by a written agreement and
if they are the result of genuine negotiations between the
project owner and the management company then such fees
are palpable for tenants.  However, tenants will sometimes
object when a project is managed by the owner and a
management fee is included in the operational expenses of the
project that the tenants are paying.  Tenants may be
uncomfortable because there is no third party negotiations to
ensure that the best price is obtained for the management
services but rather the project owner is simply setting the fee
that they will be paid and such an arrangement could be
abused by the owner to the detriment of the tenants.  However,
the project owner should receive some compensation for
managing the project because a great deal of effort and work
can be expended in the management of a commercial real
estate project and if the owner did not undertake this task then
someone else would.  Therefore tenants will often agree that
management fees that are payable to the project owner are
permitted but the tenant will require that such management fees
be limited to either a specific amount, a percentage of some
charge negotiated by owner and tenant such as the base rental
amount, or as a percentage of the total pass through expenses
that the tenant is obligated to pay.  This provides the tenant
with some limitations on such management fees so the owner of
the project is not simply setting its own fee that the tenants are
obligated to pay.

                                         Return to Examination of Pass Through Expenses
Law Office of
Craig W. Little, P.A.