The so called “going rate” for operating expenses in a commercial lease is often assumed to be fairly well set in concrete by many tenants.

They get caught sometimes because they haven’t had time to investigate further, or simply take a leasing agent or lawyer’s word for it that the going rate is simply what they have to pay.

But that doesn’t have to be the case, and in today’s world, I believe pretty well most things are negotiable.

I go through lots of operating expenses (opex) line by line on behalf of clients and often find there is absolutely no need for some things to be included.

A simple example is a tenant being charged for a portion of the operating expenses of a lift in a building, when the tenant may be on the ground floor and never use it.

Likewise a business could be lumped with the cost of an “irrigation mechanic” to water some expensive pot plants or landscaping when the tenant concerned is nowhere near this particular area in a complex and gains no benefit from it.

Often, a landlord has a set idea about the Total Occupancy Cost and will divvy up the rent and operating expenses whatever way they can to achieve the gross total.

My advice in such a circumstance is to take a close account of when the opex component of the lease is reconciled each year. Most leases will say the landlord or their appointed property manager will reconcile the opex once a year and you will be advised whether the budget has been under or over spent. At this point you can either get a refund or be invoiced for what may be outstanding.

The key thing is to keep a close eye on the expenses and to check them out at the appropriate time; either before the lease is signed, when the opex budget is being set, or when it is being reconciled.

It is also useful to seek expert advice so you are clear about some of the so called going rates in the market, as these vary and change constantly.

Landlords often won’t like it, but it really is a case in this day and age of monitoring your opex to ensure it isn’t living an opulent lifestyle at your expense.

Tags: lease operating expenses, property lease operating expenses

This entry was posted on Tuesday 25th August 2009 and is filed under Property Leasing. Both comments and pings are currently closed.