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Is It Opex?

by | Mar 15, 2025 | Uncategorised

Opex, operating expenses, or outgoings – what’s a reasonable charge, and how does it get accounted for?

These expenses are associated with the day-to-day running and maintenance of the leased property. Understanding what is covered and not covered under OPEX is essential for both parties to avoid disputes and ensure smooth lease management.

What is Covered Under OPEX?

OPEX typically encompasses costs that are necessary for the regular operation and maintenance of the building. These expenses often include:

  1. Utilities and Services: Water, electricity, gas, and other essential utilities.
  2. Building Maintenance and Repairs: Costs related to maintaining common areas, structural repairs, and routine maintenance.
  3. Property Management Fees: Payments for the services provided by a property management company.
  4. Insurance Premiums: Building insurance and liability coverage.
  5. Cleaning and Security Services: Building cleaning services, security personnel, and alarm systems.
  6. Council Rates: Local government rates and other statutory charges including compliance and Building Warrant of Fitness costs.
  7. Health & Safety: Building health & safety audits and associated compliance costs
  8. Common Area Expenses: Lighting, landscaping, and maintenance of shared spaces such as lobbies and parking areas.

Do They Have To Be Charged?

Some of these charges might also be absorbed by the tenant without being included as an operating expense oncharge. This largely depends on the building and how it functions. An office tenant might arrange a cleaning service for their individual space and pay that directly, but shared toilet facilities and common area cleaning will be charged and managed through the opex budget and the property management firm.

What is Not Covered Under OPEX?

Certain expenses are typically excluded from OPEX, as they are considered the direct responsibility of either the landlord or the tenant. These may include:

  1. Capital Expenditures: Major structural renovations, upgrades, or new installations.
  2. Depreciation Costs: Non-cash accounting charges related to asset depreciation.
  3. Tenant-Specific Costs: Fit-outs, interior design, or modifications requested by the tenant.
  4. Legal and Accounting Fees: Expenses related to lease negotiations or disputes.
  5. Marketing and Advertising Costs: Promotion and branding expenses for the property.
  6. Landlord’s Financing Costs: Mortgage interest and loan repayments.

Importance of Clarity in Lease Agreements

To avoid misunderstandings and disputes, it is vital to have a clear and detailed lease agreement that explicitly outlines which expenses are classified as OPEX. Tenants should thoroughly review the OPEX clause and seek legal advice if necessary to understand their obligations fully.

By distinguishing between operating expenses and other costs, both landlords and tenants can foster a transparent and mutually beneficial leasing relationship, ultimately contributing to the smooth operation of the commercial property.