Lease Audit Information
TOPIC OF THE WEEK:
Sheplers, Inc. vs. Kabuto International
Corporation (63 F. Supp. 2d 1306, 1313-14 (D. Kan. 1999)):
On August 6, 1999 a case was decided by the US District Court
of Kansas between a landlord (Kabuto) and tenant (Sheplers)
over common area maintenance charges. The tenant brought the
action against the landlord for declaratory judgment and an
accounting under the lease between the parties. The parties'
dispute concerned whether certain costs were properly chargeable
to tenant as common area maintenance charges under the lease.
The lease contained very standard language regarding the common
areas and what the common area expenses could include. The
judge's rulings on several pertinent issues (some of which
we have discussed) were as follows:
Burden of Proof/Expense Substantiation
Landlord has control of the records relating to CAM expenditures.
Therefore, Landlord has the burden of proof. It is not the
responsibility of the tenant to prove why an expense is not
allowable in CAM - it is the responsibility of the Landlord
to prove why an expense is allowed in CAM.
If Landlord cannot substantiate an expense, it is not allowable
Off-Site Management Fee/On-Site Management Expenses
Only management costs related specifically to the common areas
are includable. If Landlord can provide reasonable, credible
detail establishing that part of the off-site management fee
or on-site management expenses are directly related to CAM,
that portion of the expenses is includable. However, based
on the evidence provided by the Landlord (the contract between
Landlord and managing agent), the court concluded that none
of the off-site management fees were directly related to CAM.
Also, because Landlord could provide no credible evidence
regarding the on-site expenses and the testimony of the property
manager lacked credibility, the on-site expenses were excluded
Tenant may reasonably require that the percentage of time
spent by the property manager or other employee be evidenced
by records of daily time and the allocation of that time to
Since the lease provided for operating and managing the common
areas and did not provide for an "administrative fee",
the judge ruled that administrative expenses that were directly
related to CAM could be included. However, since the landlord
provided no credible evidence to support the inclusion of
these expenses, the administrative expenses were excluded.
For a full transcript of the case, please e-mail your
address and we will mail it to you!
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