The retail lease says triple net but the building has one water meter

Question

Here is a mismatch that shows up in a lot of small mixed-use lease packs. Take a corner building, five apartments over two storefronts. The commercial lease says the tenant pays its proportionate share of taxes, insurance and utilities, and defines proportionate share by square footage. But the plumbing plan shows a single water meter for the whole building and no submeters anywhere. By that formula the salon on the ground floor pays 22 percent of the water bill, and the five apartments pay nothing because their leases include utilities. Is that how it actually works in practice, or does the landlord end up eating the difference? And when a buyer wants to fix it, who normally pays for installing the submeters?

tylerbrooks9 · Answer

In practice the landlord eats whatever the formula does not capture, and with gross residential leases upstairs that is most of the bill. The square footage split at least gives you a defensible number to invoice the salon, and salons use real water, so 22 percent may well be under what she actually consumes. Submetering the commercial suite is the owner's cost unless you negotiate it into a renewal or a new lease. Plumbers typically quote it as a day's work plus the meter and the backflow device, and the price climbs fast if the risers are not stacked so one line serves one space. Whether you can bill submetered water on to a tenant as a utility is a state and sometimes city question, so check your local rules before you build the recovery into your numbers. The cheaper fix on small buildings is a flat monthly utility charge in the retail lease, set high enough to cover a heavy user and stated as a fixed dollar amount so nobody argues about the reading.

The retail lease says triple net but the building has one water meter

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