![]() ![]() This can be especially complex in a mixed-use building (i.e. For example, a tenant leasing a 100 square foot space in a building with 1000 total rentable square feet would pay 10% of the building’s Operating Expenses. Tenants typically each pay their pro-rata share of the total cost based on the percentage of rentable square footage they occupy in the building. When negotiating provisions that affect the calculation and payment of Operating Expenses, Landlords should consider how any modifications may impact the calculation of Operating Expenses concerning the other tenants in the building. ![]() Otherwise, tenants risk paying much more under the lease than anticipated and landlords risk a shortfall in covering the expenses required to operate the building. Operating expenses are costs associated with operating and maintaining the property, and it’s critical that both landlords and tenants understand how Operating Expenses are calculated. What are Operating Expenses in a Commercial Lease? One of the largest categories within Additional Rent is “Operating Expenses.” ![]() Typically, “Base Rent” is easily calculated as the price per square foot paid by the tenant during the term of the lease, while “Additional Rent” is a catch-all bucket for any amounts paid by the tenant under the lease in addition to the base rent. In commercial leases, the rent structure is typically made up of two parts: Base Rent and Additional Rent. All this to say that, whether you are the Landlord or the Tenant, you want to get this right. Unlike most other contracts that a business might sign, a commercial lease often doesn’t provide the ability to terminate mid-term, unless a material breach of the agreement occurs. While the average commercial lease term is between 3 to 5 years, these leases can run up to 10 years, plus extension periods. Negotiating Operating Expenses in Commercial Leases by Ashley Wong | August 22, 2019įor many companies, a commercial lease is one of the most critical and high-value contracts into which they’ll ever enter. ![]()
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