Operating Expenses

Operating expenses encompass all costs associated with managing and maintaining a commercial property. In NNN and modified gross leases — common in Chicago's suburban healthcare real estate market — these expenses are passed through to tenants either in full or in part. Typical operating expenses include property taxes, building insurance, utilities for common areas, janitorial services, landscaping, snow removal, security, property management fees, and repairs. In medical office buildings, operating expenses may be elevated compared to standard office properties due to higher maintenance standards, HVAC requirements, and specialized cleaning protocols. Tenants should always request a current year operating expense budget and prior year actuals during lease negotiations, and push for annual caps on controllable expenses (typically 3–5%).

Operating expenses directly impact total occupancy cost and can fluctuate significantly year to year. Healthcare tenants who understand OpEx composition are better equipped to negotiate caps, audit reconciliations, and challenge inappropriate charges.

A rehabilitation clinic leasing space in an NNN building receives its annual operating expense reconciliation and discovers the landlord allocated $12,000 in management fees and $8,000 in unexpected HVAC repairs to tenant accounts — expenses it successfully contested as non-standard capital costs.