2025 Operating Expenses Reconciliation Statement: What Tenants Should Know
With the spring season around the corner, it’s time to receive and thoroughly review your 2025 Operating Expenses Reconciliation Statement. After another inflationary year (this is getting old!), this report reveals how effectively your landlord and/or property manager predicted budgets and managed rising costs throughout the year.
Operating expenses continue to climb across the board. Increases in real estate taxes, property insurance, utilities, labor, repair and maintenance costs, and snow removal are impacting nearly every commercial property. The key question for tenants is simple:
How effectively has your landlord managed these increases on your behalf?
It is also extremely important to understand whether your lease includes an operating expense cap, and if so, what type of cap applies. Most leases include either:
- Year-over-Year Caps: Limit how much certain operating expenses can increase from one year to the next (for example, a 5% annual increase limit).
- Cumulative or Compounding Caps: Allow increases to compound over multiple years, meaning small increases can grow significantly over time.
Just as important is understanding the difference between controllable and non-controllable expenses.
Controllable expenses are costs the landlord or property manager can influence through management decisions. These typically include items such as janitorial contracts, landscaping, maintenance vendors, and administrative costs. Because these costs can be managed or negotiated, they are often subject to lease caps.
Non-controllable expenses, on the other hand, are largely outside of the landlord’s control and are typically excluded from caps. These commonly include real estate taxes, property insurance, and utilities. Because these costs are driven by municipalities, insurance markets, or external providers, they can fluctuate significantly from year to year.
Understanding which expenses fall into each category is critical when reviewing your reconciliation statement.
How Good Landlords Protect Tenant Interests
Proactive landlords take measurable steps to control costs and minimize unnecessary pass-through expenses.
1) Appealing Assessed Values
Property taxes are often one of the largest operating expenses. Responsible landlords regularly review and appeal assessed values when appropriate to ensure tenants aren’t overpaying due to inflated valuations determined by the local municipality. A successful appeal can significantly reduce the tax burden that is ultimately passed through to tenants.
2) Leveraging Insurance Economies of Scale
With some property insurance premiums increasing by 30% or more in recent years, savvy owners combine multiple properties under a single policy to create economies of scale. This strategy can significantly reduce overall premium costs compared to insuring properties individually and helps mitigate the impact of rising insurance markets.
3) Investing in Sustainable & Energy-Efficient Infrastructure
Upgrading HVAC systems, installing LED lighting, improving insulation, and modernizing building systems can offset rising utility costs over time. While these capital improvements may be partially passed through to tenants depending on lease terms, they should create measurable operational savings and long-term efficiency gains that benefit both owners and occupants.
4) Competitively Bidding Service Contracts
Janitorial, landscaping, security, and maintenance contracts should be regularly bid out to qualified vendors to ensure pricing reflects current market conditions. Without competitive bidding, service costs can quietly drift upward year after year without tenants realizing it.
5) Snow Removal
While snow removal may seem like a minor expense in the Triangle region, 2025 and early 2026 reminded everyone that winter weather still happens here. Because snowfall events are infrequent, some landlords rely on on-call vendors whose pricing can vary widely depending on demand and response time.
Well-managed properties typically maintain pre-negotiated snow removal contracts, clear trigger thresholds (for example, service at 1–2 inches of accumulation), and defined scopes of work. This helps ensure tenants are paying fair, market-based costs rather than emergency service pricing after a storm.
What You Can Do as a Tenant
Don’t simply pay the reconciliation invoice without reviewing it carefully. This statement is your opportunity to ensure charges align with your lease terms and reflect fair market practices.
First, send your reconciliation statement and your lease to RCR for a complimentary abstract and review. We will review the Operating Expense (OPEX) section of your lease and compare it to the reconciliation statement provided by your landlord.
Our team will evaluate:
- Whether expenses were properly categorized
- Whether caps were applied correctly
- Whether charges appear reasonable and consistent with market practices
We’re confident in our ability to ask the tough questions, identify discrepancies, and potentially reduce the amount owed to your landlord.
In this continued inflationary environment, diligence matters. A thorough review today could mean meaningful savings now and in the future.
