Question

A custom recovery is created that specifies, a max ceiling on property taxes of 3% and an admin fee of 15% on utilities. In 2020 the property tax is $100,000. In 2021 the property tax is $105,000 and utilities are $13,000. The tenant signed a lease at the start of 2020 and occupies 30% of the leasable area. What is the tenant expense recovery or reimbursement in 2021 in terms of total dollars?

Answer 1

The tenant expense recovery or reimbursement in 2021 is $5,290.

Step-by-step explanation:

The property tax increased by 5% from 2020 to 2021, reaching $105,000. Applying the max ceiling of 3%, the limit for 2021 would be $100,000 + ($100,000 * 3%) = $103,000. Hence, the excess over the ceiling is $105,000 - $103,000 = $2,000. Considering the tenant's 30% occupancy, their share of the excess property tax is $2,000 * 30% = $600.

Additionally, the utilities cost $13,000 in 2021. With the 15% admin fee on utilities, the landlord can recover $13,000 * 15% = $1,950. The tenant's portion of this is $1,950 * 30% = $585.

Therefore, the total reimbursement to the tenant for 2021 equals $600 + $585 = $1,185 for property taxes and utilities. Adding this to the base rent (30% of the total expenses) of $4,105 ($13,000 * 30% + $105,000 * 30% = $3,900 + $205), the tenant's total expense recovery amounts to $5,290.