Glossary
Expenses & Charges
Operating Expenses
Operating expense means the recurring cost of running and maintaining a property or business in a commercial lease or accounting context. The operating expenses definition usually refers to recoverable OpEx such as CAM, real estate taxes, insurance, utilities, janitorial, repairs, and management fees, subject to lease exclusions.
Firm impact
The operating expense pool is the source of every billable overcharge. In a triple net lease, tenants often pay operating expenses on top of base rent. In a gross lease or base year lease, the landlord may absorb some costs until expenses exceed the base year or expense stop. Firms that understand the lease structure can separate recoverable OpEx from landlord-only costs.
How this gets abused
A landlord's operating expense pool included loan interest payments ($120,000), leasing commissions ($85,000), capital expenditures for a roof replacement ($210,000), and the CEO's salary ($180,000). All four categories were barred by lease exclusions. These additions inflated the pool by $595,000 before the tenant's share was calculated.
Practitioner note
Review the operating expense definition, lease exclusions, gross lease or triple net lease structure, base year, expense stop, and reconciliation statement before classifying costs. The scope of recoverable operating expenses is a function of lease language, not accounting convention.
FAQ
Questions about operating expenses
What are operating expenses in a commercial lease?
Operating expenses are the costs required to run and maintain the property, often including CAM, property taxes, insurance, utilities, janitorial, repairs, and management fees. The lease decides which operating expenses are recoverable from tenants and which are excluded.
Are operating expenses the same in a triple net lease and a gross lease?
No. In a triple net lease, operating expenses are usually passed through to tenants in addition to base rent. In a gross lease, the landlord may absorb operating expenses except for increases over a base year, expense stop, or negotiated threshold.
What is typically excluded from operating expenses in a commercial lease?
Common lease exclusions include capital expenditures, depreciation, loan interest and debt service, leasing commissions, tenant improvement allowances, above-grade executive salaries, reserves, landlord overhead, and costs covered by insurance proceeds.
How does CAMAudit detect excluded operating expenses?
CAMAudit's Excluded Service Charges rule scans the reconciliation for expense categories the lease explicitly excludes. Any excluded items found in the pool are flagged as overcharges with the specific lease exclusion cited.
You know the term. Now check the math.
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