As a healthcare practitioner you need to have an office space with a great deal of equipment and supplies. You are always paying for linens, medical supplies, office supplies, and rent. You have base rent, additional rents and every once in a while you get a bill from your landlord for operating costs. Well, we know that your base rent is the amount you agreed to pay for occupying that space. We also know that your additional rents cover that tenant improvement allowance you were granted when you moved in – but what are the operating costs for?

Thank you for your assistance with my lease negotiation. Knowing you were taking care of my best interests allowed me to focus on my business.

Dr. Roger Arredondo, San Antonio, TX

If you do not receive an itemized invoice for these costs how are you to determine what you’re being billed for? Some landlords have been known to charge back virtually anything to their tenants under the heading ‘operating cost’ which is unfair to say the least. It is possible that you’re helping to fund the tenant inducements of other businesses in the building, or you may be paying your landlord’s income and profit taxes. You may also find yourself in a bind when you’re billed for the operating costs of the building from 3 years ago!

At Cirrus we have come across instances where the landlord would bill ‘travel expenses’ to the tenants in his building. Upon examination of the landlord’s books it was discovered that ‘travel’ covered everything from going to and from the building to taking the wife and 3 kids to Disneyworld for a week!

There are ways to help prevent this kind of thing from happening. First, before signing a lease make sure that you have the right to review statements of operating costs. If you have the right to see exactly what is being charged it is unlikely that you will be billed for something wholly unreasonable.

If you have won the right to review your op costs, how can you tell what is fair and what isn’t? Obviously, any charge related to running and maintaining the building is acceptable as well as any replacements of old or dysfunctional systems to keep it as it was when you moved in.

You should not have to pay for any improvements or replacements done in order to increase the value of the property – that is a landlord’s cost. You shouldn’t have to pay for repairs or replacements of structural components, real estate broker’s commissions, or professional fees charged that do not relate to your space specifically. You do not need to pay for the interest or principle payments on any mortgages or other debt costs unless it is your debt (TIA). You shouldn’t pay for marketing costs to attract new tenants to the building, nor should you pay for general marketing costs as it may be a breach of CMA guidelines. Many of these things are the costs of doing business as a landlord and are not your responsibility. Make sure there are no duplications of operating costs and that you are not paying sky high administration fees. Administration fees and management fees are one and the same – don’t get caught paying both.

Not every landlord is going try and take advantage of you, but without the right to review the statements you will never know for sure what you are being billed for. If you’re not sure what you are paying for – ask your landlord. Read through your current lease and determine what your landlord says about such costs. If you want to make sure that you will never be billed erroneously, make a note of it when it becomes time to renew your lease. Before exercising your option, ask the landlord to include the right to review operating costs in the new lease. If you are not comfortable dealing with your landlord, or, if they are difficult to deal with, be sure to contact a leasing professional to explore your rights and options.