Let’s Talk: What Tenants Need to Know About Operating Expenses

Let's Talk: What Tenants Need to Know About Operating Expenses

When you lease commercial space, whether office or industrial, your costs go beyond rent.

What are Operating Expenses?

The base rent schedule in the lease agreement is not indicative of the total costs you will be paying to occupy space, as most tenants also pay a share of the building’s operating expenses (OpEx). Operating expenses are the costs a landlord incurs to run, maintain, and manage the property, and these expenses are typically passed through to tenants based on the amount of space they occupy relative to the total rentable square footage of the building.

For many companies, operating expenses can make up a significant portion of total occupancy costs. That’s why it’s important to know what’s included, what you can control, and how to protect yourself from unpredictable OpEx increases. 

Most importantly, tenants should ask whether the OpEx calculations they receive are accurate and in accordance with their Lease. Landlords often make mistakes in annual reconciliations which increase the total amount of operating expenses passed onto the tenant. Cresa’s advisors and lease administration team are devoted to fully understanding your lease to prevent and correct these mistakes, protecting your best interest.

What’s Included in OpEx?

Operating expenses usually cover things like:

• Property taxes and insurance
• Utilities for common areas
• Janitorial services
• Security and landscaping
• Routine maintenance and repairs
• Administrative Expenses such as Salaries and Property management fees

While this list looks straightforward, the details matter. For example, some Landlords include capital improvements as repairs and maintenance, which can increase your share of costs substantially if not properly defined in the lease.

Negotiating Caps on OpEx Increases

One of the most effective ways to protect yourself is by negotiating a cap on controllable operating expenses. This sets a limit on how much those costs can rise each year, providing predictability for your budget. While you may not be able to cap uncontrollable expenses, you can require transparency and the right to audit the landlord’s records to confirm charges are accurate.

The Bottom Line

Operating expenses can add up quickly, but with a clear understanding of what they include and strong protections in your lease, you can manage them more effectively.

At Cresa, we review operating expense clauses and reconciliations carefully and negotiate on behalf of tenants to ensure costs stay fair and predictable. By taking a proactive approach, you can mitigate unpleasant operating expense charges and keep your lease agreement working in your favor.