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Five Ways to Limit Your Liability for Operating Expenses

Most commercial leases that require payment by the tenant of its share of the building’s operating expenses include a lengthy definition of the term “operating expenses.” The definition typically includes a laundry list of potential and actual expenses for which the tenant will be responsible.

While many landlords are willing to exclude certain limited items from operating expenses, they typically have little patience when discussing operating expense exclusions. Most commercial tenants are left with an overly broad definition of operating expenses and a very narrow list of exclusions.

A tenant’s liability for operating expenses might approach or even exceed its liability for base rent, yet unlike base rent, operating expenses are rarely fixed or tied to a formula that provides any degree of certainty. Rather, operating expenses are outside the control of the tenant, and in many cases, rather unpredictable. During the letter of intent stage, there are certain concepts tenants should include to obtain certainty regarding operating expenses—such as expense stops or caps on controllable operating expenses. Corporate Realty Advisors negotiates these items heavily in any lease.

But it’s crucial to also familiarize yourself with the following five concepts all tenants should include in their leases to protect against runaway operating expenses regardless of their ability to obtain other protections such as expense stops, caps on controllable operating expenses, and recommended exclusions from the definition of “operating expenses.”

Require Landlord to Take Advantage of Any Available Discounts 

Many large commercial landlords have considerable purchasing power with respect to materials and services purchased for their buildings. Most vendors gladly will sell to large commercial landlords at a reduced price to gain repeat business. Discounts may be available to smaller landlords also. Landlords should not be required to go to Herculean efforts to obtain discounts, but they should be required to take advantage of…

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