Operating Expense Inclusions
The positive definition of what costs are included in operating expenses and recoverable from tenants through CAM charges.
Model Lease Language Variations
“Operating Expenses shall mean all costs and expenses of every kind and nature paid or incurred by Landlord in connection with the ownership, management, operation, maintenance, repair, and replacement of the Building and the Land, including without limitation the items set forth on Exhibit B.”
Expansive 'all costs' language with non-exhaustive list. 'Without limitation' preserves landlord's ability to include costs not specifically enumerated. 'Replacement' language blurs the capital/operating line.
“Operating Expenses shall mean all reasonable costs incurred by Landlord in the operation, management, maintenance, and repair (but not replacement) of the Building, including the specific categories listed on Exhibit B. Costs not listed on Exhibit B shall be included only if customarily included in operating expenses for comparable Class A office buildings in the metropolitan area.”
Reasonableness standard with market comparability test. Exhaustive list with market-based catch-all. Repair vs. replacement distinction preserved.
“Operating Expenses shall mean only those costs specifically enumerated on Exhibit B attached hereto. No cost not set forth on Exhibit B shall be included in Operating Expenses regardless of whether such cost is customary or necessary for the operation of the Building.”
Strictly exhaustive list. If it's not on Exhibit B, it's not recoverable. Maximum certainty for tenant. Landlord bears risk of omitting a cost category.
Calculation Methodology
1. Compile all Building-related expenses for the year. 2. For each expense, determine if it falls within the lease's inclusion definition. 3. Apply the reasonableness standard if applicable. 4. Verify against the exclusion list (see Operating Expense Exclusions). 5. Include only expenses that pass both the inclusion and exclusion tests. 6. Allocate included expenses to tenants per their pro rata share.
Common Drafting Errors
Using 'including without limitation' language that makes the inclusion list illustrative rather than exhaustive — virtually any expense could be included
Not defining 'reasonable' or providing a market comparability standard — leaves the reasonableness determination to landlord's discretion
Including 'replacement' in the definition without a dollar threshold — allows major replacements to bypass the capital expenditure exclusion
Failing to address landlord's costs that benefit the landlord directly (e.g., leasing commissions, marketing for vacant space)
Relevant Case Law
Landlord included lease termination costs and vacant space marketing in operating expenses under 'all costs of management and operation.' Court held these were landlord's costs, not Building operating expenses, and excluded them.
Billing System Implications (Yardi / MRI)
In Yardi, operating expense inclusions are mapped through GL account assignments to recovery pools. Common error: assigning GL codes to recovery pools that don't match the lease's inclusion definition — e.g., including corporate overhead allocation in a pool that only permits building-level expenses. In MRI, verify that each charge code in the Recovery Analysis is tied to a specific lease inclusion provision.
CapVeri Analysis
The inclusion definition sets the outer boundary of what's recoverable. Overly broad inclusion language is the root cause of most CAM disputes. CapVeri compares actual expenses billed against the lease's inclusion list to identify improperly included costs.
Related Resources
Validate Your Lease Compliance
CapVeri catches gross-up errors, cap violations, and billing mistakes before tenants or auditors find them — from your Yardi or MRI exports.
Start Free Audit