Additional rent explained

Additional rent — operating costs, op costs, TMI, CAM — is the tenant's proportionate share of the cost of running the building. In an industrial bay it is a substantial part of total occupancy cost, and unlike net rent it is not fixed. It is estimated, paid monthly, and reconciled to actual cost after the year end.

What is normally in it

How your share is calculated

Normally by area: your rentable area divided by the building's total rentable area, applied to the total pool. That is simple and usually fair, but it can distort where one tenant consumes far more of a shared service than its area suggests — a high-water-use or high-power tenant in a building that apportions those costs by area is being subsidised by everyone else.

Check the denominator. If costs are divided by leased area rather than total area, tenants in a partly empty building pay for the vacant space. A gross-up provision is normal and reasonable for costs that vary with occupancy; applying it to fixed costs is not.

Estimate, then reconcile

You pay an estimate monthly. After the landlord's year end, actual costs are calculated and you either receive a credit or an invoice for the difference. Two practical points follow: your first-year budget should assume the estimate is low, and you should always have the right to see the reconciliation with enough detail to check it.

What to negotiate out, or cap

• Capital expenditure — replacing a roof or a parking lot is a capital cost that benefits the owner well beyond your term. At minimum, require that capital items be amortised over their useful life with only the annual portion charged.
• Structural repair — should sit with the landlord, not in the operating pool.
• Costs of leasing — commissions, marketing, legal fees and tenant inducements are the cost of owning, not of operating.
• Management fee stacking — a management fee calculated on a pool that already includes the management fee.
• Costs specific to one tenant — a service provided to a single occupant should be billed to them.
• Uncapped increases — ask for a cap on the year-over-year increase in controllable costs. Taxes and insurance are not controllable; most of the rest is.

Audit rights

Ask for the right to review the reconciliation and the supporting records within a reasonable window, and for an adjustment if a material error is found. A landlord confident in its accounting will not object. Some leases add a clause requiring the landlord to pay the audit cost if the error exceeds a threshold — a fair provision and worth asking for.

Before you sign

1. Ask for the current year's estimate and the last two years' actual reconciliations. A landlord who will not provide them is telling you something.
2. Read the exclusions list, and the inclusions list, in full.
3. Confirm what is separately metered and what is shared.
4. Confirm the total building area used in the calculation.
5. Ask what capital work is planned in the next few years.
6. Budget the total of net plus additional rent, not the net rate.

The occupancy cost calculator totals net rent, additional rent and your own operating costs on a monthly and annual basis, using figures you enter.