The real risks are buried in the details of operating expenses, maintenance responsibilities, and lease language that shifts costs unexpectedly. In today’s market, landlords are getting more creative with how they structure pass-throughs. And in too many cases, the tenant ends up footing the bill.
This is what we see every day at Oxford.
Lease type is changing, but risk is rising faster
Across all types of buildings, from A-class offices to older industrial facilities, we’re seeing a clear shift toward triple-net leases. Landlords often say it is about cleaner accounting or easier underwriting. That may be true. However, the primary reason is that it shifts the cost burden from them to the tenant.
In a triple-net lease, tenants assume 100 percent of the risk for operating expense increases from the outset. If a landlord estimates $8 per square foot and it ends up being $10, the $2 difference is the tenant’s problem. Under a full-service lease, the landlord would absorb that increase in year one.
Insurance and taxes are driving volatility
Operating expenses are rising for reasons unrelated to tenant usage. In Texas, where there’s no state income tax, property taxes fund government operations. Commercial properties face no caps; consequently, those taxes can rise steeply from one year to the next.
Insurance has also become unpredictable. Storms, hurricanes, and extreme weather have pushed premiums higher across the board. What used to cost two cents per square foot per month may now be five or six. In many buildings, insurance has overtaken property taxes as the biggest line item in the CAM.
Tenants can and should negotiate caps
Many tenants don’t realize they can negotiate limits on how much certain costs can rise. Not all expenses are controllable, but for those that are, caps should be clearly defined in the lease. Without that, the landlord has no guardrails.
It is also crucial to limit the types of costs that can be passed through. Ownership expenses should not be included. Capital improvements must either be excluded or amortized in an appropriate manner. Every lease handles these items differently; therefore, reviewing the fine print is not optional.
HVAC failures can shut down your business
In industrial buildings, HVAC is one of the most overlooked risks. The equipment itself can cost hundreds of thousands or more. If it fails during a weekend or off-hours and the tenant is waiting on landlord action, the entire business operation could grind to a halt.
Some tenants, especially those running machinery that requires climate control, are better off taking full responsibility for maintenance. That includes regular service contracts that help prevent expensive breakdowns. However, even then, the lease must clearly define who will pay for the unit if it needs to be replaced. Without that language, the tenant could be forced to cover the full replacement cost, even in the final months of the lease.
Unpredictability is the real liability
Regardless of the lease structure you have, you are relinquishing a certain level of control. The key difference lies in the level of unpredictability you are exposed to and how well you’ve protected yourself in advance.
Industrial leases often place more responsibility on tenants. That includes everything from maintenance to repairs to insurance. In recent years, some landlords have even begun passing on costs for roofs, sprinklers, and code compliance to tenants. These were once the landlord’s responsibility. Now they’re becoming the tenant’s liability.
Marketing numbers are often wrong
Another problem is the way operating expenses are marketed. It’s common for landlords to advertise unrealistically low figures to make a building seem more attractive. A tenant may be shown a rate of 18 cents per square foot per month when the real cost will be 30 cents or higher.
In office, a building may list $8 per square foot per year in expenses, when actual costs are closer to $10 or $11. These estimates are often intentionally low. When the reconciliation comes in after the first year, tenants are left holding the bag.
Unequal burden in half-empty office buildings
In office buildings with high vacancy, landlords sometimes try to pass a disproportionate share of expenses onto the few remaining tenants. If you occupy five percent of the building, you should only pay five percent of the operating costs. But some leases are written in a way that allows landlords to shift more of that burden than is fair.
The gross-up provision, which determines how costs are allocated when the building is not fully leased, is one of the most confusing areas of any lease. It is often misunderstood by landlords, tenants, and even brokers. However, it can have a significant impact on what you ultimately pay.
New trends in shifting liability
One recent trend is the requirement for tenants to carry additional insurance policies that cover the remaining rent obligation in the event the business fails. These policies are expensive and difficult to find. Many tenants don’t realize they are required to have insurance until the landlord requests proof after the lease is signed.
Another growing issue is the retrofitting of sprinkler systems. In older industrial buildings without fire suppression systems, tenants may be forced to install sprinklers if triggered by code or occupancy changes. This is especially costly when public utilities are unavailable, and systems must be built from scratch. The price tag can exceed $500,000.
Real situations, real costs
We have seen landlords try to:
- Classify employee bonuses for tax protests as pass-through tax expenses
- Charge one building’s tenants for software systems used across an entire portfolio
- Pass legal expenses for ADA lawsuits on to tenants
- Categorize property upgrades as operational instead of capital expenses
Sometimes these tactics are overtly improper. Yet, they are often buried in the gray areas of lease language. Either way, if you don’t catch them, you pay for them.
This is why representation matters
None of this is theoretical. We see it happen every day, and we also know which landlords operate fairly — and which ones don’t.
A good broker does more than negotiate rent. They know which buildings are worth considering and which operators are likely to engage in questionable practices. They know how to read the fine print, which provisions to focus on, and how to structure protections into your lease from the start.
They also know how to put together the kind of proposal that gets you taken seriously, so you don’t lose the space you want to a better-prepared group with stronger representation.
The lease is just the beginning
Every building costs money to operate. That will never change. What you can change is how much of that risk you take on and how prepared you are to handle it. At Oxford, we help tenants navigate these decisions every day. We know the operators. We understand the trends. We fight to ensure our clients are protected from the start. If you want predictability, protection, and peace of mind, it starts with the proper representation.
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Had a wonderful experience with both Jacob and Vincent. They met my needs, battled for the best rates and outcomes during the lease negotiations, and were very quick to... read more
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