Operating expenses are the costs of operating a commercial property (office, retail, warehouse space) to the extent the building is functional for it’s intended purpose. One way or the other the Tenant pays all operating expenses; either as part of base rent or in addition to base rent.
In a multi-tenant property the Tenant may pay its proportionate share of the operating expenses to the Landlord in base rent or as “pass-through or reimbursable expenses. In a single-tenant property the Tenant typically pays 100% of the operating expenses.
Depending on the type of commercial property the Tenant may pay some expenses directly to the service provider (e.g. electricity when leasing retail or industrial space)
What ARE included in operating expenses?
- Property taxes (and costs incurred in an effort to reduce taxes)
- Property insurance
- Maintenance (CAM, building, landscape, elevator, etc..)
What are NOT typically included in operating expenses?
- Debt Service
- Marketing Costs
- Reserves for replacement
- Costs for services provided to, and reimbursed by individual Tenants
- Capital expenditure, except those tied to OpEx reduction or government mandates
If you have any questions or comments about operating expenses don’t hesitate to contact us!