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In the Spotlight: Negotiation of Operating Expenses in an Office Lease

By Eric M. Greenberg
December 27, 2007

With so much of today's retail space being leased in mixed-use buildings, especially office buildings, developers and retailers should familiarize themselves with leasing concepts inherent in office leases. While the inner workings of CAM charges in a shopping center are familiar territory for the developer and the retailer, the negotiation of operating expenses in an office lease poses a different sort of challenge. It is important to discuss this topic because the allocation of which party pays the costs of an office building's operating expenses is one of the most negotiated provisions in an office lease.

Naturally, a landlord will attempt to include as many items as possible in its list of building operating expenses of which tenant must pay a proportionate share, and a tenant will attempt to exclude as many of those items as it can. Negotiation of what is included and excluded in operating expenses can have a drastic effect on a tenant's (and landlord's) bottom line. What first seems like an acceptable figure for base rent may no longer look like a bargain after a landlord's laundry list of operating expenses is added to the mix. The intent of this discussion is to provide a brief overview of commonly negotiated operating expenses. This article presents both the landlord and tenant perspective for each operating expense issue discussed.

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