Case: Sheplers, Inc. v. Kabuto International Corporation
On August 6, 1999 a case was decided by the US District Court of
Kansas between a landlord (Kabuto) and tenant (Sheplers) over common
area maintenance charges. The tenant brought the action against the
landlord for declaratory judgment and an accounting under the lease
between the parties. The parties' dispute concerned whether certain
costs were properly chargeable to tenant as common area maintenance
charges under the lease.
The lease contained very standard language regarding the common areas
and what the common area expenses could include. The judge's rulings
on several pertinent issues (some of which we have discussed) were as
Burden of Proof/Expense Substantiation
Landlord has control of the records relating to CAM expenditures.
Therefore, Landlord has the burden of proof. It is not the
responsibility of the tenant to prove why an expense is not allowable
in CAM - it is the responsibility of the Landlord to prove why an
expense is allowed in CAM.
If Landlord cannot substantiate an expense, it is not allowable in
Off-Site Management Fee/On-Site Management Expenses
Only management costs related specifically to the common areas are
If Landlord can provide reasonable, credible detail establishing that
part of the off-site management fee or on-site management expenses are
directly related to CAM, that portion of the expenses is includable.
However, based on the evidence provided by the Landlord (the contract
between Landlord and managing agent), the court concluded that none of
the off-site management fees were directly related to CAM.
Also, because Landlord could provide no credible evidence regarding
the on-site expenses and the testimony of the property manager lacked
credibility, the on-site expenses were excluded from CAM.
Tenant may reasonably require that the percentage of time spent by the
property manager or other employee be evidenced by records of daily
time and the allocation of that time to various activities.
Since the lease provided for operating and managing the common areas
and did not provide for an "administrative fee", the judge
ruled that administrative expenses that were directly related to CAM
could be included. However, since the landlord provided no credible
evidence to support the inclusion of these expenses, the
administrative expenses were excluded.