Agenda - 09-02-2008 - 4e - Laserfiche WebLink

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Heat and Air Conditioning costs are often reported separately and in addition to utilities. The expenses would include the cost of fuel other than the above-mentioned utilities and may include, especially in large installations, labor costs, the cost of related supplies, inspection fees, and maintenance charges. These are generally legitimate costs and the same precautions prescribed for "utilities" are in order. Elevator expenses, including the wages and uniforms of elevator attendants and the cost of repairs and services, are legitimate deductions. Repairs and services are generally handled through service contracts and can be regarded as fairly stable annual recurring expenses. Decorating and minor alternations are necessary to maintain the income stream of many commercial properties. In this respect, they are legitimate expenses. However, careful scrutiny of these figures is required. Owners tend to include the cost of major alternations and remodeling which are, in fact, capital expenditures and as such are not legitimate operating expenses. Repairs and Maintenance expenses reported for any given year may not necessarily be a true indication of the average or typical annual expense for these items. For example, a statement could reflect a substantial expenditure for a specific year (possibly because the roof was replaced and/or several items of deferred maintenance were corrected) ; yet the statement for the following year may indicate that repairs and maintenance charges were practically nil. It is necessary for the appraiser to either obtain complete economic history on each property in order to make a proper judgment as to the average annual expenses for these items or include a proper allowance in the building capitalization rate to cover these annual expenses. Since it is neither possible nor practical to obtain enough economic history on every property, the latter method is generally used and the amounts reported for repairs and maintenance are not deducted as an expense item. Careful consideration must be given to the allowance used in the building capitalization rate as the cost of repairs and maintenance for commercial buildings will vary considerably depending on age, condition, the general quality of construction, and labor costs.