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Apartment Leases Resemble Commercial Leases?

A major factor contributing to the improved health of apartments is many apartment leases are becoming more like triple net commercial leases.

Many if not all “utility” costs as well as well as governmental and quasi-governmental costs are being passed through to residents, however,  owners cannot pass on increases in property taxes, insurance, maintenance or standard on-site administrative costs in excess of a base year to residents. Somewhat surprisingly, residents haven’t balked en masse at the increases in charges, perhaps because many are former homeowners who are accustomed to paying them.

As pointed out in the Winter 2012 issue of Texas Apartments by Wendy Wilson, the Texas Apartment Association General Counsel, developing lease provisions to meet the realities of the marketplace while conforming to the intricacies of the law is a top priority.  She has developed a new lease addendum allowing apartment owners to allocate a variety of governmental charges and fees to residents, such as “street repair/maintenance, emergency services, conservation districts, inspection and registration/licensing”.

Owners and operators who also charge for services more akin to utilities such as central cable and satellite TV, stormwater/drainage, and trash pick-up/recycling fees, can include all such charges in one addendum. In some states, amortized capital improvements for stormwater/sewer facilities and school district expenditures, are also being passed through to residents regardless of whether such charges appear on utility bills or property tax bills. Ms. Wilson points to a variety of formulas for allocating such costs.

No doubt, there is and will continue to be consumer and possibly legislative resistance in some locations to passing these costs through to residents. Ms. Wilson cautions that “common sense and fairness” should serve as a guide. For example, local apartment registration, along with licensing and inspection fees is becoming increasingly common and can be quite substantial. Such fees are generally billed once a year and operators choosing to pass these through on the theory that they benefit the residents, might be prudent to spread them out. But as long as any such costs can be allocated to residents, owners can be moderate in rent increases without the need to speculate on future increases in such costs.

By Ward A. Katz, President and CEO, m-fishency.com
Blog:  www.multifamilypropertyevaluation.com

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I remember having to explain in detail to people when we implemented a RUBS program and their pushback on that. I can't imagine having to add in school district expenditures, too, especially in an area where the residents all have to pay a City Tax, not to mention other allocated costs. I think the key is your statement that owners can be moderate in rent increases. The question is, will they at a time when several companies are milking the rental boom trend? I wonder how many renters paying a rental rate of $900 plus the additional fees will jumpstart their home search should that happen?

  Mindy Sharp
This comment was minimized by the moderator on the site

I think it is great to pass on the fee's itemized out so that people can see what costs are to landowners Maybe tenants will think twice about the garbage rate increase or voting to raise taxes if they can see the effects it has on themselves.

  Scot F. Worden

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