Dispute over NNN after sold of anchor store

We own a restaurant in a shopping center for over 2 decades, then the previous owner sold the anchor store at the end of 2013, and sold the rest to the new owner at the beginning of this year. The anchor store used to pay NNN by sq footage, which is 75%, we pay about 7%, and other tenants pay the rest by proportion. We had a big surprise when we received a letter from the new owner for year-end reconciliation. We have to pay 27+% (the proportion of our space of the whole shopping center minus anchor) of NNN due to the sale of the anchor store. :bs we hired an attorney to sent a letter to the new owner and argue it stated anchor store helps to pay NNN in the lease, but the new owner argues he has the right to do that :deal, and demand us to pay the 13k+ difference from last year in this month. from his reply, he wants us to take one of his options :evil. first one, pay what we owe in the next six months. second, add 7yrs extension to the current lease and spread the balance in 84 months. but, starting the 4th yr, rent goes up $0.4/sq ft PER YEAR till the end of lease :bs we are already paying a premium on the rent, and it feels like a robbery :banghead with the increase on NNN and the increase IF we want a lease extension. i’m seeking help from people with experience in this forum for help. should i take the new owner to court? how likely we will win? if the likely hood of winning is slim, can i ask for termination of the lease since it doesn’t make sense anymore? i really appreciate your help. :help

p.s. we already know will pay an extra 4k+ next year-end reconciliation on tax

I am not an expert whatsoever on this type of commercial property, but I do know lease agreements.

Unless there is a provision in your agreement that allows the new (majority) owner to unilaterally redistribute overhead liability, the new owner can go suck eggs.

If in fact, your lease gives the owner the right to change the terms of your liabilities, with notice, then you’re screwed like a Chinese prison slave.

Of course, as you mentioned, if the terms are changed without authority, then you have a case for breach of agreement.

The fact that the owner is providing alternatives of payments tells me he is either fishing, bluffing, and/or otherwise operating on a false assumption.

That’s wordy for blowing smoke up your butt.

What does your attorney say about this? Isn’t his opinion worth more than what you’re gonna find here? Just asking.

Notwithstanding, if there aren’t any provisions in your lease agreement that allow these changes mid-stream, then ignore the demands, and pay what you owe on the schedules you agreed, and call it a day …if that’s possible.

Of course any services paid by the owner, that your business depends on, may become disrupted. Then it’s a matter of weighing your options between going to court, quitting the lease, or sucking drain water until you can find a better alternative.

I’m still confused that you don’t trust your attorney on this matter. He knows, understands, and can advise based the terms of your lease agreement better than anyone else. Or what am I missing?

I’m thinking about getting a new attorney because the one I have right now charging 150/hr, and he’s not helping much. He forwarded the email to me and just say, “see below and let me know your thoughts.” :banghead If I know what I should do, then I wouldn’t have to hire an attorney, right? from the look of it, the new owner thinks we are schmucks. we are already paying 13.30/sq ft for base rent and 2.28/sq ft for NNN before the dispute, and now NNN is 4.117/sq ft, but with increase proportion on tax next year, it’ll be 4.738/sq ft if other things don’t change. did i mention this town’s population is only 18000? we are just fed up and wanted to move to other town.


Your attorney isn’t worth a dime, with that kind of lazy feedback.

BTW, $150 seems cheap to me. I haven’t ever hired one for less than $225/hr, with a $5,000 retainer fee (up front).

You need more than a personal injury attorney to help you here. j/k

Meantime, read over your lease.

See where your rights and obligations start and end.

Then find out what the competition is offering.

If you’re not able to find anything cheaper, or less onerous, then you just accept what you’re offered and move on.

The issues of course, in moving away, include the costs of moving, new t.i. costs, disruption/loss of your established clientele base, hiring/training of new help, etc. etc.

You might consider renegotiating a longer term lease agreement, to achieve a predictable overhead, and then sell the lease terms and business itself, if it’s possible. The new overhead, of course, makes your business worth less, on paper.

Maybe you need to raise prices on your products?

Or maybe pull a “Staples” on your employees, by making everyone part-time, and eliminating any liability for Obama’s “CrapCare” lie and insurance scam?

Otherwise, maybe the new owner is just adjusting the rents/liabilities to reflect market value, despite you paying for a larger share of the square footage liability? I don’t know.

All the same, your attorney is a lazy fat-head. You’re paying your attorney to think, not ask you what you think. SMH

Thanks for your feedback. That’s what I think of my attorney. Whatever he has done, I could do it myself and save a few hundred bucks. :rolleyes I was trying to see if there’s anything like this happened anywhere else. I’ve never heard any shopping center sell the anchor and let small tenants share the costs. what also makes me mad is the anchor store only bought their part of the building and very little space in the parking lot to put their stuffs outside. none of the space is for parking purpose, so their customers are parking on “our side”, and we have to pay for it. i estimate we’ll pay $80000 extra until the lease end in 2018. well, so much for working 7 days a week and try to make more money for myself.

Unless you upload a copy of the lease I can’t tell you what’s right.

Not knowing what it says and you saying it’s not in the lease, my default answer is remember the kiss rule. Keep it simple. If the owner writes letters… Who cares. You know what, make an appointment and sit down with the owner and tell him to show you where in the lease he can demand this increase. If it doesn’t say he can do it in the lease, tell him to sue you because you’re going to keep paying what you’re paying now and you’ll ask the court to break the lease for breach of contract, move into a newer building down the street, and you’re gone and he’ll get no rent on a vacant unit. In fact, if that’s his plan, tell him to write up a termination agreement right now so you can move out and he’ll save a lot of money on legal fees.

OR, if he’s selling off sections of the shopping center like the anchor store like a retail condo unit, ask him how much he wants to sell your section for and you’ll ask the bank for a loan.

Like you said, this building is over 20 years old as you’ve been a tenant that long. I saw a 15 year old free standing McDonald’s restaurant get torn down last year in my city and rebuilt at the other end of their parking lot because the upkeep was getting to be too much for such an old building. Retail buildings these days are cheaply built and not built to last so who cares about retail space in a shopping center that’s over 20 years old.

Don’t get suckered into bad lease deals. There’s always alternatives, which may include you moving out and into a vacant building down the street. I don’t know what you’re paying because I don’t know the size of your unit, but you may even be able to build a new building down the street with the same mortgage payments as you’re paying rent. With 20 years of good financial statements, what credit union wouldn’t want to lend you the money?

Forget about signing a new overpriced lease and selling the business in the future because the business isn’t going to be worth anything if you’re paying exorbitant rents.

If you think your lawyer is giving you useless advice, call the state bar and ask for a referral and a free 1/2 hour consultation with a new lawyer which is common practice and have a new lawyer look over the lease.

Thanks again for the replies guys. well, the new landlord is 3 time zones away, I don’t think it would do me any good to see him anyway. I don’t think it would be wise to ask him to sell to us because he will be asking a ridiculous price; might as well just build. we occupy 5600 sq ft and paying 13.30 base rent. Unfortunately, my attorney has the lease right now, so couldn’t tell you the specific words in the NNN section. I could post his reply though. here’s the reply:

I wanted to clarify that the sale of [anchor store] was completed by the previous owner before we engage with him for the purchase of the remaining portion of the property, and we purchased only the current 20,540 sqft of commercial property.

[anchor store] was occupying 75% of the property, and they used to pay 75% of the Tax, CAM and Insurance expenses to the previous owner. Our current tenants used to pay 25% of the expenses to the previous owner before the sale of [anchor store]. For example, [anchor store] was paying 75% of $71,159.44 (the property tax) and our tenants were paying a total of $17,789. After the sale of [anchor store], the projected tax of our property was increased to $30,403. The total increase in Tax is $30,403-$17,789=$12,614.

The CAM charges for 2013 was $56,608.91 (It was stated incorrectly as $49,796.73 in your letter). The CAM charges for 2014 was $42,174.13. Our current tenants used to pay 25% of $56,608 =$14,152 prior to sale of [anchor store]. The total increase in CAM charges is $41,174-$14,152=$28,022.

The insurance charge for 2013 was $15,591.81. The insurance charge for 2014 was $10,491. Our current tenants used to pay 25% of $15,591.81=$3,898. The total increase in Insurance is $10,491-$3,898=$6,593.

The calculation of the Management/Administrative Fee was based on the following formula: 4% of NNN charges of $19,306.32 = $772.25 (4% of $11,498.30 CAM+$4,947.76 Tax+$2,860.25 Ins.) plus $2,979.20 (4% of Base Rent of $74,480.04) = $3,751.45

The property requires extensive repairs including the resurfacing/re-stripping of the parking lot. The estimates for parking lot resurfacing/re-stripping is around $100,000, and roof replacement estimates is around $110,000. We are planning to absorb the expenses of these improvements if the tenants pay their new 2015 monthly rents set in the Reconciliation Statements.
The tenants should not expect us to pay the entire amount of $210,000 in repairs and pick up additional $47,229 increase in CAM, Tax and Insurance expenses. All we are asking from the tenants is to pay the increase in NNN charges.

Before we engage with an Indiana Licensed Attorney to represent us regarding this matter, we want to give another chance to the owner’s of [our business name]. We believe that it’s in the best interest of both parties to resolve this matter without going through costly and lengthy court proceedings. We see [our business name] as one of our valuable and loyal tenants, and we want them to stay in the property for years to come.

I will make the following two proposals:

Option 1: The tenant will pay a total of $13,320.73 (balance from 2014 and balance from Jan. and Feb. 2015 rents) within the next 6 months ($2,220.12 per month starting March 1, 2015).

Option 2: The tenant will pay a total of $2,398.32 prior to June 1, 2015 (balance from Jan. and Feb. 2015 rents) within the next 3 months ($799.64 per month starting March 1, 2015). The tenant will pay the balance of $10,922.41 from 2014 in 84 months ($130.03 per month) upon the execution of a new 7-year lease extension starting on June 1, 2015, and ending on May 31, 2022. Since the current lease is ending on Sept. 30, 2018, the base rent for the first 3 years of the New 7-years Lease Extension period will remain as the current base rent of $6,206.67. Starting June 1, 2018, the base rent will be $6,392.87; Starting June 1, 2019, the base rent will be $6,584.66; Starting June 1, 2020, the base rent will be $6,782.20; Starting June 1, 2021, the base rent will be $6,985.67.

fyi, it stated in the lease that we don’t have to pay a dime for the roof. he should know what he’s getting into before he buys it, so he shouldn’t be pushing his costs to us.

So, the new owner’s tax assessment went up, based on his purchase price, and now wants to force the existing tenants to absorb a portion of those higher taxes?

That increase in tax liability is the anchor store owner’s sole responsibility to pay.

It seems to all come back to whether your lease agreement allows for this, or not, and then whether, or not, it’s worth staying put, or not.

Meantime, you’ve illustrated the predictability and value of owning over leasing.

It sounds like the tax assessment increase was based on purchase price and the property was previously assessed at a lot lower price than the purchase price.

You may be on the hook for it in a NNN depending on what the lease says. But, the taxes could still be appealed. You would have to contact a commercial property appraiser and ask him what other comparable retail properties in the area are paying in taxes and find out if this assessment is excessive or not and how much he wants to do a tax appraisal and show it to the landlord. If comparable properties are paying a lot less in tax per square foot, you can approach the landlord and say appeal the tax assessment. The landlord may ask you to hold the difference in escrow in case the appeal fails and an appeal could take years before you get a hearing date. It’s not a sure thing. You might win the appeal. It might get denied. Or the tax assessment office might be willing to negotiate for somewhere in between.

Another option. Call several commercial realtors in the area and ask if they have 5,600 sq ft of restaurant space available and how much they want for it? If it’s a lot less than you would be paying at the place you have now, you could consider moving or telling the landlord, “Listen, I called a realtor and he has 5 other locations with rents at … per square foot, which is a lot less than I’m paying right now. I’m not paying above market rents. Do you want me to stay at what I’m paying now or do you want the place to be vacant and you get nothing? Good luck getting more money in this economy if you want to play that game when there’s all these other vacant units for a lot less rent than I’m paying now. You can always appeal the taxes if you think the system is unfair, but I’m not paying above market rents. The economy isn’t what it used to be. Times are tough for me too. This isn’t Manhattan.”