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Joint Use Agreement For Common Area

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runner52

Sophomore Member
Joined
Mar 15, 2010
Professional Status
Certified General Appraiser
State
Washington
I have an interesting assignment. There are two buildings that adjoin via a common lobby and entry. Technically, the parcels divide between the lobby. Building 1 owner used to own building 2 also but got a boundary line adjustment and sold building 2. however, upon sale, he got a joint use agreement that the lobby would be common area for both buildings, to include a mechanical room and lobby. I am only concerned with building 1 for appraisal purposes. The joint use agreement is binding with transfer of ownership. My question is: how do I handle the common area that is on the other parcel (building 2) when calculating the net rentable area of the two tenants of building 1? For example, the mechanical room/elevator and lobby for first floor is 738 SF. Building 1's tenant spaces are 1718 and 3123 SF; building 2 is 4,480 SF USABLE. When calculating NET RENTABLE, do I allocate that common area that is on building 2's parcel to my tenants in building 1? Since they are paying CAM charges for those areas, I assume so. When I do the Sales Approach, do I include that common area of building 2 in the GBA of building 1?

Basically...how do you handle the common area of the other parcel in my parcel? Does this common area get credited proportionately to the building on my parcel?

Thanks.
 

Gobears81

Senior Member
Joined
Nov 7, 2013
Professional Status
Certified General Appraiser
State
Illinois
When calculating NET RENTABLE, do I allocate that common area that is on building 2's parcel to my tenants in building 1? Since they are paying CAM charges for those areas, I assume so.
Thanks.
The Building 1 owner is paying CAM charges for the other side, but Building 2 is paying CAM charges (or the equivalent) on your side. In other words, it goes both ways. I wouldn't count what isn't owned by this entity. Say that the entire common area is 1,500 SF and the parcel boundary allocates half to your side. That would suggest a rentable area of 5,230 SF, not 5,980 SF.
 

runner52

Sophomore Member
Joined
Mar 15, 2010
Professional Status
Certified General Appraiser
State
Washington
Makes sense Gobears81. They are both benefiting and the costs are equal. In essence, is there to say then that this joint use agreement (easement) does not impact value since there is an offset? I'm thinking so. The easement is mutually beneficial but as far as adding value, I would not say so.
 

Gobears81

Senior Member
Joined
Nov 7, 2013
Professional Status
Certified General Appraiser
State
Illinois
Makes sense Gobears81. They are both benefiting and the costs are equal. In essence, is there to say then that this joint use agreement (easement) does not impact value since there is an offset? I'm thinking so. The easement is mutually beneficial but as far as adding value, I would not say so.
I don't know if I have the answer on that. You could be spot on, but for example I have seen properties where the floor location is more valuable because the common elements are more abundant and nicer than on the other floors. Do those elements have additional costs? Yes, but in the cases I am thinking of, it is more than offsetting. In other cases, the additional common elements could be a negative, due to the higher expenses.
 
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