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What Are Operating Expenses And Why Should I Care?

There is more to an office space lease than the base rent. Operating expenses are also included in the monthly tenant expense. Depending upon the type of lease you have your operating expenses are included in your first year's rent or you are paying triple net expenses.

It is important to understand your lease's operating expenses because they can potentially be as high as fifty to one hundred percent of your base rent. A general rule is that the higher the classification of the office building the more expensive the operating expenses.

Operating Expenses

Operating expenses are different depending upon the type of lease you execute.

Single Net Lease: The property taxes, rent, and electricity are usually at the expense of the tenant. The landlord is responsible for insurance and building expenses.

Gross Lease (Full Service): Gross leases are sometimes called full-service leases. This lease includes estimated property taxes, insurance, and taxes with the base rent and electricity.

Double Net Lease: In addition to the base rent the tenant normally would pay for the insurance, operating expenses and electricity.

Triple Net Lease: In this lease, the tenant will pay for their base rent and the building's operating expenses, insurance, and property taxes plus electricity.

Modified Gross: This lease has a base rent that includes the triple net charges plus electricity.

What is included in operating expenses?

Traditionally operating expenses in Dallas office leases include:

  • Utilities to operate the building

  • Property maintenance expenses

  • Property maintenance expenses

  • Property management fees

  • Property Taxes

  • Property Insurance

  • Janitorial services and supplies

  • HVAC Maintenance

  • Plumbing maintenance and repairs

  • Landscaping

  • Water and sewer

  • Security expense

  • Amortized capital expenditures

  • Labor

  • Tax reduction service fee

Items that are not included in operating expenses:

  • Debt Service

  • Property tax late fees

  • Building depreciation

  • Commissions

  • Legal fees associated with tenant issues

If the tenant doesn't occupy the entire property the property taxes are prorated based upon a percentage of the square foot occupied. This is an equitable way to share the expenses in a multi-tenanted office building.

If you have a gross lease or a modified gross lease you may have an operating expense base year. It is imperative that the lease requires the landlord to "gross-up" the base year operating expenses. Your broker will walk you through this process and make sure you are covered. \

If you are confused by the topic of operating expenses please feel free to contact us. Our service is free to tenants and we can help you navigate the real estate world to get a good lease.

You may also like to read:

Dallas Tenant Representation

Steps To Take For A Good Sublease

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