The typical commercial net lease provides that the tenant will pay a share of the costs incurred by the landlord to maintain and repair the property ("Operating Costs"). It typically also characterizes replacements as a type of repair (e.g. if the roof membrane needs a complete overhaul instead of a patch job, the landlord considers the replacement cost to be an Operating Cost). Tenants often take the position that Operating Costs should only include costs that accountants characterize as "expense" costs, as distinct from "capital" costs, which should be excluded. When a tenant successfully negotiates the exclusion of capital costs from Operating Costs, the question is what exactly is a "capital" cost?
Read the full article here: Not Paying for That - It is a Capital Cost- 2012 October
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