Client just received their annual CAM reconciliation from their landlord in Duluth. Minnesota Power costs allegedly jumped from $2,400 per month to $8,160 per month with no explanation. Building occupancy hasn't changed, no new tenants, no major equipment installations that I'm aware of. Landlord claims it's due to "rate increases" but a 340% increase seems impossible. Anyone dealt with utility cost spikes this dramatic in lease pass-throughs?
CAM Reconciliation Shows Utility Costs Up 340% - Red Flag?
Carl, that's definitely suspicious. Here in Oklahoma City with OG&E, we've seen some significant rate increases but nothing close to 340%. I'd request copies of the actual utility bills for both years, not just the landlord's summary. Look for changes in rate schedules, demand charges, power factor penalties, or seasonal rate variations that might not be legitimate pass-throughs.
Susan's right about demanding the actual bills. I caught a landlord here in Tulsa trying to pass through costs from a different property entirely. The PSO account numbers didn't even match the building address. Also check if they switched from a standard commercial rate to an industrial rate that might have higher demand charges but lower energy rates - the math might not work in tenant's favor.
Carl, I'd also verify the meter readings themselves. Had a case in Sacramento where SMUD was estimating readings for 8 months due to a faulty meter, then hit the building with a huge true-up bill. The landlord tried to pass through the entire adjustment to tenants instead of absorbing costs from periods before they occupied the space. That could explain your 340% spike if there was a prior period adjustment.
Great suggestions everyone. Requested the actual Minnesota Power bills and found the smoking gun - landlord included a $18,400 "true-up" charge from 2013 that was never paid and had been accumulating interest. This cost pre-dates my client's lease by two years. The actual utility costs only increased about 12%, which is much more reasonable. Filing a formal dispute with the landlord next week.
Perfect example of why we do what we do, Carl. Landlords counting on tenants not scrutinizing these reconciliations. Here in San Jose, I've seen PG&E late payment charges from 2010 still being passed through to current tenants in 2015. The lease language usually requires "current operating expenses" not historical debt. Keep us posted on how the dispute goes!