My current location: | Change location

What are operating expenses?

Another clause that can cost you a bundle pertains to operating expenses. A standard landlord lease will require you to pay for all costs of owning, managing, maintaining, and operating the complex. This usually will include the key phrase "without limitation." Experienced commercial landlords do not expect you to agree to this clause, although they will be quite happy if you do.

At the very least, you will want to exclude the following from operating costs:

Capital costs for the building

The costs of any debt financing

Construction costs for improvements to the space of other tenants

Costs covered by the landlord's insurance

Costs covered by warranties under the landlord's construction or equipment contracts

Sophisticated tenants won't stop there, however. You will also want to exclude

costs of disputes between the landlord and other tenants,

costs connected to concessions operated by the landlord, and

costs of obtaining and installing art or decor for the complex.

Find out how the common area charges are calculated. If the cost is shared, find out whether it is calculated on a pro rata basis. In most shopping complexes, large retailers, often called "anchors," are given cost reductions to encourage them to lease space in the center. One concession is that the large retailer will pay a flat rate, rather than a pro rata share, toward common area costs or operating expenses. The landlord deducts this amount from the overall operating expenses and than divides up the remaining operating costs on a pro rata basis among the smaller tenants.

American Bar Association Family Legal Guide
Copyright © 2004 American Bar Association

Prev FAQ Next FAQ

Help Me Find a Qualified Attorney

Find a Qualified
Attorney Near You