Do you know what your landlord is putting in your operating costs aka common area maintenance?

Do you know what your landlord is putting in your operating costs aka common area maintenance?

What I really mean by that question is this: do you know what operating costs for a building consist of? What the operating costs of your building consist of? Let’s break it down. Operating costs include the building’s taxes, replacement insurance for the building, as well as fees for landscaping, management, and maintenance fees. In other words, the building’s overhead. Recently, I was working with a broker that was new to the business, and I asked him to send me the fees. Upon receiving the list, I noted that they were way too high—I thought for sure that something was off. Sure enough, the landlord (in this case, someone who owns only two buildings in the area, a rarity!) had included all brokerage fees in the operating costs. That’s a big no-no! Brokerage fees, as well as any fees occurred while getting a space ready for occupancy by a tenant should not be included in operating costs.

So, what can landlords charge their tenants for?  Landlords can make capital improvements to a building (things that benefit ALL the tenants in the space), such as replacing the roof, but they should never charge the tenant directly for this fee in a single year. Rather, the cost should be amortized based upon set government standards, and then charged back to the tenant over several years.

Your broker should take a look at the operating costs for any building you look at, and assess whether something fishy is going on. When in doubt, examine the paperwork, and ask questions. Otherwise, you may run the risk of paying for things you shouldn’t be responsible for.

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About the Author

Lynn Drake’s status is well known in the industry: She’s the commercial realtor focused on maintaining “true north” for her corporate clients. It’s a reputation built on 35 years of commercial real estate experience. Lynn became a commercial realtor in 2001 after 15 years in corporate real estate. Thus far in her career, Lynn has successfully completed over 1,500 real estate transactions ranging from small business tenant leases to the sale and purchase of industrial complexes.