A question we get asked at this time of year by many of our clients is, “Why is the landlord sending me a bill for operating expenses?” Most of the leases that we help clients negotiate stipulate in the fine print how this process works, but it is commonly misunderstood. The operating expenses for most commercial properties include taxes, insurance, and common area maintenance (CAM) which is then divided by your pro-rata share (rentable square footage/total square footage). CAM includes things like landscaping, management fee, parking area cleaning, common area electricity, roof maintenance etc.
Each year the landlord will set a budget for the estimated operating expenses for the property and send that cost to the tenants to be paying as part of their rent. At the end of the year they reconcile the costs that were actually paid and if there is a difference then the tenant is responsible for their portion of these additional costs (sometimes it can be in the form of a credit, but not typically in a market of increasing prices). This process is similar to paying your personal taxes throughout the year based on your estimated gross income and then at the end of the year paying the difference based on what you actually made.
This year we have seen a huge increase in insurance premiums across every product type with as much as 300% increases. This will affect owners and tenants as this difference has to be paid. In addition to the reconciliation, you will notice the new budget for the next year and the new operating expense payment you are responsible for paying going forward.
We are always happy to review your lease and/or analyze the reconciliation documentation when it comes. There are strategies to help keep costs down, but in this ever-changing inflationary market, 2023 will be a challenging year for expenses across the board.
-Larry Indermuehle, Investment and Industrial Advisor
2022 ICO AWARDS
Ever year ICO Commercial celebrates our people and their successes throughout the year by having the ICO Awards. This is a time where our people are recognized for their hard work, dedication to clients, outstanding service, teamwork, and much more.
Just to name a few, this year Danna Sossen received the Top Sales Award, Costa Bajjali received the Larry D Indermuehle Scholarship Award which allows him to further his education in real estate and Kelsey Davis received the Split Award which recognizes her ability to handle multiple tasks, deadlines, and conflicting priorities with ease. Our people are the heartbeat of our company and we enjoy celebrating each and every one of them.
