Operating Costs for Tanning Tenants

Operating costs are an important consideration for tanning salon owners. The following frequently asked questions should help you better understand the basics about operating costs – and how they may play out positively or negatively in your leasing agreement.

What are operating costs?

An operating cost is typically defined as a repair or maintenance item to a property – as opposed to a capital cost, which would add value to the property. Operating costs can include items such as repair and maintenance of parking lot asphalt, grass cutting, snow removal, property insurance, elevator maintenance and so on. Operating costs are also known as Common Area Maintenance (CAM) charges and/or occupancy costs.

Is there a going rate for operating costs?

The operating costs for every building are determined initially with a budget for every year – how much is going to cost to run this building and keep it up to par? If the tenant occupies 10 percent of the building, he/she will be responsible for a proportionate share (or 10 percent) of the building’s operating costs.

My landlord keeps raising my operating costs for the building I am in. Is there any way to cap these increases?

The only way to cap these operating costs is by initially negotiating it into your lease agreement. Most landlords don’t want to cap operating costs because they don’t know what may go wrong or what expenses they can incur.

I understand that operating costs are charged proportionately; however, how can I account for utility costs?

In an office tower / shopping mall, utilities are usually included as part of the operating costs. In a strip mall, however, the Heating, Ventilation and Air Conditioning (HVAC) equipment is typically located on the roof. The more lights and equipment that’s installed and the more air conditioning that’s used, the higher the tenant’s electrical costs. This can be significant when it comes to a tanning salon (especially compared to other low-energy-consumption businesses). Therefore, this is not unfair; you are paying for what you consume.

The building is 30 percent vacant … who is paying the operating costs on the vacant space?

Some lease agreements require the landlord to pay the operating costs on vacant space, while other lease agreements do not. This is probably the biggest concern with lease agreements.

How can I be certain the landlord is charging me fairly for the operating costs?

The good news is that every tenant has the right to audit the operating costs for the property. The landlord has a fiduciary responsibility to disclose and make detailed information available to the tenants.

Got a leasing question? Would you like a complimentary copy of Willerton’s CD, “Leasing Do’s & Don’ts for Tanning Tenants?” E-mail dalewillerton@theleasecoach.com to see your questions answered in an upcoming article.

Dale Willerton is “The Lease Coach” and a senior lease consultant who works exclusively for tenants. As an ITA member, he has spoken at many North American tanning conventions. Willerton is the author of “Negotiate Your Tanning Salon Lease or Renewal.” Call him at 800.738.9202, e-mail dalewillerton@theleasecoach.com or visit www.theleasecoach.com or www.helpuleasetanning.com .