By Tiffany Toliver, P.E.
This story starts in the suburbs Atlanta, GA. I was working on a pad-deal in a prominent lifestyle center. The LOI was fully negotiated and executed and I was waiting on a lease draft from the Landlord. During this time, I had a local engineering firm doing some code research on the site so that I could accurately estimate a project schedule and permitting costs.
The due diligence report flagged one issue called a ‘sewer capacity reservation fee’. As I dug deeper with the engineering group and the city, I found out that this fee, for restaurant use was $300,000! I knew instantly that this would throw a wrench in the approval process on the corporate side.
I rushed back to the executed LOI; it clearly stated that ‘the Landlord was to pay any and all impact fees’. I immediately felt better about the whole issue and continued on with my day with the knowledge that this fee was on the Landlord to pay. As I thought more about it, I started to wonder how the Landlord could make his ROI work with a $300,000 hit in fees plus deliver the whole workletter, plus a tenant improvement allowance.
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I thought it was best to get this out in the open so I set up a conference call with the Landlord to discuss the issue. So on the call, I brought up the findings of the engineering report and offered to send them a copy. I told him that we could not pick up the building permit until these fees were paid. And after we waive contingencies, we’ll be looking for a check from you (Landlord) so that we can get our permit and start construction.
The phone was silent for a few minutes.
Then the Landlord said..”This sewer capacity reservation fee ….that’s not what we’d consider an impact fee”. So at this point, there’s an immediate spike in my blood pressure and I knew that our ROI on the deal will suffer greatly if we had to shell out $300,000 on what I still consider to this day to be an impact fee.
So long story short here – the attorneys got involved and since we had not signed the lease yet, we had a little bit of leverage. We ended up splitting the fee with the Landlord.
So what would I have done differently in this case? I would’ve certainly defined what the definition of an impact fee was. And for the record, I did after that project. If you’re interested in what that definition is I’ll write it down below but in a nutshell, it goes something like this:
Landlord shall pay any impact fees, including, but not be limited to, connection charges, availability fees, tie-in fees, meter fees or charges, capacity fees, reservation fees, EDU, utility connection fees, “tap-in” or tap fees or impact charges, and any similar imposition charged by applicable governmental authorities or utility providers associated with the development of the Center and Premises or the use of the Premises for the Permitted Use.
Secondly, I would’ve alerted the Landlord when first I found out about the enormous fee. Even if it had been negotiated in the LOI that it was not the Landlords responsibility to pay, I would’ve still alerted him. You see in some municipalities, the developers have connections in the City and sometimes, you can get the fees reduced. Remember that impact fees, after they’re paid, are an asset of the Landlord. They stay with his property long after you are gone – it because of this reason that my negotiating stance is always to have the Landlord pay the impact fees.
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