Some commercial real estate tenants are paying for “phantom” space that does not exist, according to lease consultant Dale Willerton, who warns that mistaken measurements can add up to huge costs. “We call them landlords with 13-inch rulers,” he said.
“This is a common oversight in the commercial leasing field,” said Willerton, president of the Edmonton-based The Lease Coach. “Commercial tenants frequently trust the square footage reported on their leased premises. However, the amount of reported square footage can easily be wrong. The end result is that commercial tenants needlessly pay an increased rent, based on the incorrect square footage.”
In one case, Willerton and his staff discovered that a client, a national retailer, had been paying for 800 square feet of phantom space under 4,400-square-foot lease agreement. In another case, a 27-square-foot discrepancy in downtown Vancouver shopping mall totalled a $20,000 error over the seven years of a lease agreement.
“Even the smallest amount of phantom space can grow to be quite large as rental rates and common area maintenance charges increase over time,” Willerton noted.
Many of the cases of charging for phantom space are due to negligence, not necessarily fraudulent, Willerton said.
In the event a discrepancy is revealed and the landlord is resisting an adjustment or a refund, the tenant has a couple of options, he said.
• Factor the recovery in as part of the lease-renewal negotiation. This only benefits the commercial tenant planning to stay in the property with a lease expiring soon. Some landlords are reasonable to deal with while others are not so much.
• Take legal action or explore arbitration. This can be an expensive path for the commercial tenant and, depending on the wording of your lease agreement or the size of the potential recovery, may not necessarily be the best route.
