Notwithstanding the foregoing or any other provision of this Lease, after the first full calendar year following the Commencement Date, the amount of Annual Operating Expenses paid by Tenant shall not exceed one hundred three percent (103%) of the amount of Annual Operating Expenses paid by Tenant for the preceding calendar year measured on a cumulative basis provided, however, the foregoing cap shall not be applicable to Non-Controllable Operating Expenses (as hereinafter defined). Notwithstanding any provision of this Lease to the contrary, it is understood and agreed that for purposes of calculating Operating Expenses, excluding " Non-Controllable Operating Expenses", in any year during the Term, the amount of Operating Expenses, excluding Non-Controllable Operating Expenses, shall not exceed 104% of the actual amount of Operating Expenses, excluding Non- Controllable Operating Expenses, in the immediately preceding year, calculated annually on a compounded and cumulative basis. There shall be no cap on that portion of Tenant's Proportionate Share attributable to Non-Controllable Operating Expenses. Notwithstanding the above, the total cost of Operating Expenses, excluding therefrom Non-Controllable Operating Expenses, shall not increase by more than seven percent (7%) per annum. With my 30 years of experience in leasing commercial real estate, I can help in your review at no cost.Examples of Non-Controllable Operating Expenses in a sentenceįor the avoidance of doubt, there is no cap on Tenant’s obligation to pay Operating Expenses which are Non-Controllable Operating Expenses. If you are still in that window of the review period for your operating expenses, give me a call. Many other items like landscaping, exterior maintenance, HVAC repair, security are under 1% each. To get a feel for what your operating expenses should look like by category, and as a rule of thumb, property taxes usually make up 35-50% of the operating expenses, utilities can make up 12-18%, janitorial 10-12%, management fees 4-5% and water/sewer around 2%. Uncontrollable expenses include things the landlord has to pay every year and doesn’t have the ability to control (for the most part) such as property taxes, insurance, and utilities. These items include things like landscaping, janitorial, property management fees, window washing, parking lot maintenance, etc. ![]() Controllable expenses are those the landlord pays during the normal course of operating the building and these expenses have flexibility on how often they are incurred and as such are the type of which the landlord can usually bid out the work. There are two types of operating expenses: controllable and uncontrollable. If the lease is silent on the period of time in which you can respond, I recommend notifying the landlord that you are reviewing the operating expenses and give them a time frame of when you expect to finish your review. One way to get this is to compare previous years expenses to see if any line item goes up versus previous years. It’s always good to have a knowledge of approximately what expense items should cost. More specifically, property taxes usually make up between 35 and 50% of your expense bill!Īlso, leases typically provide a period of time, usually 30 to 90 days, for you to review the operating expense reconciliation letter the landlord sends you. Unfortunately, the non-controllable expenses like taxes, utilities and insurance are the largest expenses and get passed through 100%. If you negotiated well on your lease, you might have been able to get the landlord to agree to cap controllable expenses such as property manager fees, landscaping, janitorial, etc. Typically, it’s all operating expenses of a building except capital improvement items such as a roof replacement or leasing fees. Look over your lease for specific language for what the landlord can bill you. All of which passes through to you, whether you are on a NNN lease or have a base year expense stop. Also, if you live in Central Texas and more particularly Austin, property values have been growing at an average rate of over 7% over the last 10 years. ![]() And more recently with supply chain issues and labor market shortages, building operating expenses have been going up across the board. Over the past nine plus years, it’s been an unwelcome correspondence. It’s that time of year when your landlord sends you a letter reconciling the expenses from 2021.
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