CRE glossary
Operating expenses (OpEx)
Operating expenses (OpEx) are all costs to run a commercial building: real estate taxes, insurance, utilities, janitorial, security, management fees, and routine maintenance. In NNN structures the tenant pays their pro-rata share monthly with annual reconciliation. In modified gross, the tenant pays only increases over a base year. In full-service, the landlord absorbs OpEx in base rent.
OpEx is the most disputed line in any commercial lease. Bad operating-expense definitions let landlords classify capital improvements (roof replacements, HVAC chillers, parking-lot resurfacing) as 'maintenance,' billed in a single year rather than amortized over their useful life. Modern leases include exclusion lists, typically 12–25 categories, that protect tenants against this.
Standard OpEx exclusions from any tenant-rep lease: leasing commissions, marketing costs, landlord's legal fees, depreciation, capital improvements (or amortize over useful life), structural repairs, expenses caused by landlord's negligence, costs that benefit a single tenant, expenses recoverable through insurance or warranties, and ground-lease payments. Don't sign a lease without these.
OpEx reconciliations are due annually, typically within 90 days of fiscal year-end. The landlord provides actuals against the estimated payments billed monthly; tenant either owes a true-up or receives a credit. Tenant has audit rights, usually 60–180 days, to challenge specific line items. Use them. CAM disputes are how brokers earn their commission on the back half of a lease.
Example
- Year 1 estimated OpEx
- $12.40/SF
- Year 1 actual OpEx
- $13.10/SF
- Tenant's pro-rata share (1.8% of building)
- $0.70 × tenant SF × pro-rata = $156.80
- Year 1 reconciliation
- Tenant owes $156.80 true-up
Broker perspective
OpEx is where the deal really gets won or lost. Negotiating $0.50 off base rent feels great in week 1; negotiating a tight OpEx exclusion list saves real money for 10 years. Always request three years of OpEx history during due diligence, not just the latest year. Trends matter more than levels.
Frequently asked
People also ask
What should I exclude from OpEx?
At minimum: capital improvements, structural repairs, leasing commissions, landlord's legal/marketing costs, depreciation, expenses caused by landlord's negligence, and ground-rent payments. Detailed exclusion lists run 20+ items.
Can I audit OpEx?
Yes, leases typically grant 60–180 days post-reconciliation to challenge. Use a CRE accountant. First audit on a multi-floor lease usually pays for itself.
What's a controllable vs uncontrollable OpEx?
Controllable (janitorial, management, supplies) can be capped, 4–6% annually is market. Uncontrollable (taxes, insurance, utilities) is usually exempt from caps because the landlord can't control them.
What's a base year?
The first year of the lease, which sets the OpEx floor in modified-gross structures. Tenant pays only increases over this year.
Related terms
Triple net lease (NNN)
A lease where the tenant pays base rent plus their pro-rata share of property taxes, insurance, and CAM.
Common area maintenance (CAM)
Tenant's share of the cost to operate and maintain shared building areas, lobbies, parking, landscaping, HVAC, security.
Modified gross lease
A hybrid where the landlord covers some operating expenses in base rent and passes through others, middle ground between full-service and NNN.
Expense stop
The base year operating-expense level in modified gross leases, tenant pays only increases over this floor.
See operating expenses (opex) extracted from a real lease.
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