Avoiding the ‘CAP Trap’
With cutting costs top-of-mind for every retail chain trying to make ends meet in a lingering downturn, the National Retail Tenants Association (NRTA) is using its influence and expertise to address the occupancy side of the retail expense equation.
According to the NRTA, if your retail real estate leases are capped, you may easily fall into the “CAP trap” that can be increasing your occupancy costs. In other words, the fact that your leases are capped may lead your lease auditor to believe you don’t have to worry about them. However, says the NRTA, often the opposite is true.
NRTA member Rick Burke has studied this issue extensively, and will be presenting his review at NRTA’s Annual conference later this year in Anaheim, Calif. Burke, who is president of Lease Administration Solutions, LLC, cautions that leases that have NTE (Not to Exceed) Caps may in fact need more review to determine if a landlord has accurately billed the tenant.
“An NTE Cap should never be confused with a fixed amount or fixed percentage increase,” said Burke. “The NTE Cap can be a source of overcharges to the tenant rather than the protection from an overcharge, which it was initially designed to be.”
This type of cap can come in many different variations depending on how the lease is negotiated. It may be calculated on the base year, or on the prior year. It can be tied to a percentage or an external derivative such as a Consumer Price Index or Porters Wage. The cap may begin on the first year, or in future years. The increase may be cumulative and/or compounded.
“It is important for a lease administrator to read the lease carefully to avoid applying the cap in an incorrect manner,” advised Burke. In fact, he said that there are several scenarios in which a tenant may be at risk of overcharges from them. These include:
- Stated first year with a year-over-year percentage increase;
- Controllable vs. non-controllable expenses; and
- Cumulative and compounded caps.
To learn the specifics of the above examples, and how they can translate into significant overcharges, attend Burke’s session on the subject at the annual NRTA conference in Anaheim, Calif., Sept. 26-29. For more information about attending the conference, visit retailtenants.org.
OfficeMax to help Lady Antebellum raise money for flood relief
NASHVILLE, Tenn. OfficeMax has announced that the company is committing $50,000 to a fund-raising challenge as part of Lady Antebellum’s sold-out Fan Club Event benefiting Nashville flood relief on June 10.
OfficeMax said it will match every dollar donated for Nashville schools up to a total of $50,000, will bring much needed support to replenishing essential supplies for Nashville-area schools destroyed in the recent floods.
“Our Nashville-based associates have participated in relief efforts since the flood occurred, and we are very excited to join Lady Antebellum in doing even more for this community,” says Paul Hertz, OfficeMax, EVP retail operations. “As a company, we are acutely aware of challenges schools face in the best of times and we wanted to bring additional support to Nashville schools at this time of dire need.”
Walmart’s Gearhart to take on role of corporate secretary
BENTONVILLE, Ark. Wal-Mart Stores announced that EVP and general counsel Jeff Gearhart is being promoted to assume the additional role of corporate secretary. Gearhart will report to Walmart president and CEO Mike Duke. The company also announced that EVP and corporate secretary Tom Hyde, whose responsibilities include the legal, ethics and global security organizations, will retire from the company after nine years of service. These changes are effective Aug. 1.
Gearhart will continue as general counsel overseeing the legal department, which is responsible for handling all legal matters affecting the company in its domestic and international markets. He will also continue to lead the company’s ethical sourcing program.
“Since joining the company, Jeff has built great credibility as a leader across the organization,” said Duke. “He gives excellent advice and is also known for his collaboration and people management skills. Jeff gets involved in the details of our business and that enables him to make a strong ongoing contribution to our success.”
Gearhart joined Walmart in 2003 and has served as EVP and general counsel since February 2009. Prior to that, he served as SVP and deputy general counsel since December 2007. Before joining Walmart Gearhart spent 14 years in private practice.
Hyde joined Walmart in July 2001 after serving as SVP and general counsel of Raytheon. His responsibilities for the ethics and global security organizations will be assumed by other leaders in the company.