“Let’s Dance. To the Courthouse”

New Owner, New Methodology and
New Conflict to Resolve

Our Client: A National Health Care Company

Summary

The tenant leased 50,000 square feet in a multi-tenant building that was substantially vacant when the company moved in. The tenant occupied less than 25 percent of the building. Over time, as the building leased most of the vacant space, occupancy rose to more than 90 percent. During this transition, the building was sold to a pension fund, and management was outsourced to a national real estate company. Over time the tenant’s “additional rent” charges grew substantially. After meetings with the old and new management companies did not produce an adequate explanation or solution, the tenant and new owner both grew frustrated and hired attorneys. The new owner filed suit to collect back charges related to escalation charges. The tenant’s attorney filed suit against both the prior and new property owners and demanded substantial refunds due to over-billing. The tenant’s attorney retained us to advise them on the escalation charges and asked that we assist them in finding a way to resolve the dispute.

Our Contribution

We prepared an analysis of the tenant’s base-year expenses and compared the methodology used in subsequent years’ calculations. We found that the base-year expenses were not properly grossed-up and subsequent years’ methodology was not consistently applied. Our report suggested corrective steps for each year’s methodology. Based on these changes, we concluded that the tenant was owed a refund equal to about $50,000, or roughly 50 percent of the tenant’s claim.

Conclusion

We presented our report to the property owner’s counsel and discussed our findings. A settlement was reached shortly thereafter for the amount suggested in our report.