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24 05 2018
Commercial Real Estate Property Kelowna
 
Frequently Asked Questions by Tafco Realty Corp's Clients

1. What is the landlord's cost of obtaining Property Management Services ?
2. What are the meanings of the terms "Additional Rents", Triple Net Expenses", and "Cam Costs" ?
3. What is the meaning of the term "Gross Rent"?
4. What are the requirements to become a property manager ?

5. Why do tenants receive periodic extra billings for additional rent when their monthly lease payment already includes payment of this expense ?

 
1. What is the landlord's cost of obtaining Property Management Services ?.
There is no prescribed fee amount for this service. All fees are a matter of negotiation between the landlord and the management company and will be fully covered by both parties when entering into a management contract. Typical examples of fees are:
  • 5% per month of the base rents
  • Flat monthly fee for the project
  • 3.5% per month of all income collected (base rent and additional rents)

It should be noted that most leases include a provision for the inclusion of management and administration costs in the amount recoverable from tenants. When the cost is included in the recoverable billings it generally results in no net cost to the owner for the management services. The exception would be if losses are experienced from uncollected rents and vacancies, then the owner absorbs such costs.
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2. What are the meanings of the terms "Additional Rents", "Triple Net Expenses", and "Cam Costs" ?
These terms generally refer to all amounts payable by the tenant under the terms of the lease whether payable to the landlord or otherwise, over and above basis rent and excluding HST. Such items include property taxes, operating costs, utilities and services. Operating costs means all proper and reasonable costs and expenses incurred with respect to the operation, repair, and maintenance of the property.
Such operating costs will include

  • Cost of maintaining the landlord's insurance
  • Cost of maintenance and repair of the facilities and equipment
  • Cost of maintenance and repair of common areas of the facilities
  • Snow removal
  • Water and garbage (excluding recycling)

The above expenses are normally budgeted as an annual amount and allocated between the various tenants in the building. The expenses can be billed and collected monthly, and periodically adjusted (usually annually)
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3. What is the meaning of the term "Gross Rent" ?
The term generally means the lease rate includes the combination of the "Base Rent" component and the "Additional Rent" component. Some properties include the premises utilities while others are separated and require tenants to pay separately by separate meter billing.
With gross rent leases, the tenant's rate is set for a specified term which protects the tenant against rising operational costs during the term resulting in the landlord absorbing the risk of rising costs.
Therefore, gross rent leases are generally written with a short term (annually) and then adjusted annually to offset any rising operational costs.
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4. What are the requirements to become a property manager ?
The legal requirements for licensing and education are prescribed by the Real Estate Council of British Columbia. Educational requirements are provided by UBC (Sauder School of Business).
The Real Estate Services Act covers anyone who provides services related to real estate trading, rental management services, and strata management services.
Rental Property Management Services applies to services to or on behalf of an owner including:
  • Trading services regarding the rental of property
  • Collection of security deposits
  • Management of the real estate by:
    • Making payments to third parties
    • Negotiating / Entering into contracts
    • Supervising employees / contractors
    • Managing landlord / tenant matters

Restrictions include court appointees (receivers), trustees, lawyers and employees
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5. Why do tenants receive periodic extra billings for additional rent when their monthly lease payment already includes payment of this expense ?
Most lease agreements call for payment of a base rent together with a portion of the estimated expenses associated with the operation of the property. These annual expenses are originally estimated and a budget is usually established to collect the total amount from the tenant on a cost sharing basis.
Once the actual year end totals have been determined, the adjustment can be made between the amounts collected and the actual total expenses. If tenants have paid too much, credits are normally issued. Any shortage in the amount collected needs to be billed to the tenant for their proportionate share.
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