Negotiate Authorization to Charge Tenants for Upgraded Security

Continuing advances in technology have made it easier than ever for commercial real estate owners to have the most effective security equipment for their properties. But upgrading and increasing security measures is expensive. And although the right security plan can save you money from vandalism, theft, or liability for accidents or crimes, it also has the potential to blow your budget. You can pass through to tenants the costs of increased security measures, though. Here’s how to do it using your lease.

Don’t Forget to Use Operating Expense Provision

Passing through the costs of increased security measures to your tenants as an operating expense or CAM cost is smart. But if nothing in the lease authorizes you to pass through the costs of increased security measures, that will create a situation where you might be responsible for footing the bill. If you try to pass through the costs of your increased security, a tenant may argue, and a court could agree, that these costs aren’t covered in your operating expense/CAM cost definition. Or the tenant may claim that the increased security measures you plan are a capital expense that can’t be passed through as an operating expense or a CAM cost under your lease.

Broaden Scope of General Security Expenses

Most leases include security expenses in their operating expense/CAM cost definitions. But there can be big differences of opinion about what this general category covers. So give a broad list of the types of expenses included in general security expenses. This way, you may be able to recover some costs of the increased security measures, as a general security expense.

Your list should include as many security-related costs as possible—such as wages and salaries of security personnel, supplies, materials, equipment, devices used for security purposes, security system upgrades, and security maintenance contracts. To do this, add the following language to your operating expense/CAM cost definition:

Model Lease Language

(x)        All costs of security and security systems at the [Building/Center], including, without limitation:

(i)         Wages and salaries (including management fees) of all employees engaged in the security of the [Building/Center];

(ii)        All supplies, materials, equipment, and devices used in the security of the [Building/Center], and any upgrades thereto; and

(iii        All service or maintenance contracts with independent contractors for the security of the [Building/Center], including, without limitation, alarm service personnel, security guards, watchmen, and any other security personnel.

List Increased Security Measures as Included Capital Expense

If you add or replace a security system, or greatly expand an existing one, the costs are likely to be considered a capital expense, rather than a general security expense. And, typically, leases don’t include most capital expenses in the operating expense/CAM cost definition, which means you can’t pass these capital expenses through to your tenants. But there are usually a few exceptions made—such as for capital expenses required by law or those that are cost-saving in nature.

To protect your wallet, add a new capital expense exception for increased security measures. This exception will let you include the costs of increased security measures in the operating expense CAM cost definition.

To do this, make sure that the operating expense/CAM cost definition includes the capital expenses that you determine, in your sole discretion, are necessary to enhance security systems and improve security measures at your building or center. Add the following language to the list of capital expenses that you can pass through to the tenant:

Model Lease Language

(x)        Costs for improvements made to the [Building/Center] which, although capital in nature, Landlord determines, in its sole discretion, are necessary to enhance the security systems and improve the security measures at the [Building/Center].

Be aware that a tenant may balk at this language and demand that you be reasonable in your determination of whether the capital improvement is necessary. You may have to give in on this point if the tenant otherwise refuses to accept this new capital expense category.