On our site, MySquareFeet, the premier on-line commercial real estate listing service, we frequently get questions from tenants about bills or notices from landlords that they don't understand. And, we try to answer all of them or direct tenants to places where they can find answers. Occasionally, a question leads to a good blog topic, as this one did. Last week, a visitor to the site linked to our FAQ's and asked about a line item in her most recent CAM (Common Area Maintenance) bill. She wanted to know why there was an electric charge in the bill when she paid her electric directly to the utility company.
Maybe we can help shed some light on this topic. Landlords handle electric charges in their buildings in a variety of ways. Here are the most common ways electric use is charged to tenants.
Direct Meter- this means that you have a meter installed by the utility company that measures your usage and you pay the utility company directly. A direct meter measures only your usage. If you are in a multi-tenant building and there are shared areas such as parking garages/lots, lobbies, elevator banks and other common areas, the landlord is charged for this electric consumption on the building meter and generally passes the cost through to the tenants on a pro-rata basis. When we suggested to our questioner that she check to see if the electric charges in the bill were for common areas, she found that indeed this was what the landlord was doing. Plus Tenant Electric - In large commercial buildings, it is impractical for a landlord to have all tenants on a direct meter. In this case, landlords will average their annual electric bill for the entire building and charge the tenants additional rent that reflects the cost of the electric used by the tenants. Generally you will see this quoted as "Rent shall be $20.00 per square foot plus $2.75 per square foot for tenant electric". In theory, the $2.75 per square foot will cover the electric use charges that the landlord is billed. If the cost of electric for the building exceeds that amount, then the landlord will ask the tenant to pay the difference at the end of the year. In some cases, the landlord is actually making a profit on this, so tenants should check around to see what other buildings are charging for tenant electric. You may be able to negotiate a lower rate. Sub-meter or check meter - In some buildings, the landlord (or sometimes the tenant itself) will install a meter that measures the electricity flowing into the tenant space (AKA "the demised premises"). In many municipalities, check meters or sub-meters are not sanctioned devices because they are frequently not installed by the utility company and therefore are deemed not as reliable as direct meters. But, if a landlord suspects that one tenant is using more than it's share of the electric in a building, or a tenant feels it is grossly overcharged for its electric, a check meter may be a means of verifying usage. Electric survey - An electric survey is conducted by a specialist who inventories all the equipment in a tenant's space and examines how the tenant uses that equipment to calculate demand and consumption. This is a rare occurrence, usually reserved for very large tenants and generally when there is a dispute over electric charges or uses. For instance, if one tenant in a multi-tenant building runs a trading floor that operates 24 hours a day, has supplemental air conditioning, and server rooms, they are probably using far more than their proportionate share of building electric. If it is impractical for a landlord to install a direct meter or sub-meter, he may request that an electrical survey be employed to assure that this specific tenant is paying a fair share.
You can find answers to many more of your commercial real estate questions for occupying your office space, retail space or industrial space in other postings on our blog or by visiting the Leasing Guide on MySquareFeet. We also encourage your comments and suggestions for future blog topics.
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