That Time of Year – Operating Expense Reconciliations

Whether you have a triple net lease, or a lease where operating expenses are included and you pay the yearly cost increases, this is a key time of year for you.

Usually at the outset to each calendar year, reconciliations and audits of those operating expenses and property taxes take place, and get passed through to tenants.

If you are in a triple net lease all the triple net costs get tallied, and you probably start paying based on the upcoming year’s estimates. Paying those estimates in advance and on a monthly basis with your rent check is typical.

If you are a tenant in a full-service lease it gets more complicated, as you pay prorata overages in excess of the expenses for your 1st year of your lease, known as the base year.

Whether it is reconciling the past year or putting in place estimated payments for the coming year, all those calculations take place early in a calendar year. We get situations where landlords overcharge tenants in significant amounts in this process. Not necessarily in bad faith. Operating expense and property tax calculations can be very complicated, and gray area mistakes happen frequently. But they happen in almost every lease & every year in some way.

Tenants inexperienced in this process of auditing operating expenses often just pay their landlords amounts they shouldn’t pay.

Large brokerages don’t have the skill set, time or profitability to do reconciliations for clients. In the case of TMC for any lease we serve as tenant reps on we reconcile and audit that lease each year with regard to operating expenses and property taxes, and appropriate prorata shares. In this process we usually recover overcharges. We do this at no cost. It is part of our tenant rep service.

Contact us if this area is complicated for you in your office or industrial leases. We can immediately add value.

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