Red Flags in your TMI statement
Every year, commercial landlords send their tenants an operating expense reconciliation - commonly called a TMI statement (Taxes, Maintenance, and Insurance). It shows you the actual costs of running the building for the year and calculates whether you owe more money or are owed a credit.
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Most tenants glance at the bottom line and pay. That's a mistake.
Reconciliation statements regularly contain errors - some accidental, some structural - that result in tenants overpaying. Here's what to scrutinize before you sign off.
1. Capital Expenditures
This is one of the most common overcharges. Operating costs should cover day-to-day maintenance and repairs - not capital improvements. Capital expenditures are major investments that extend the life of the building (a new roof, HVAC replacement, elevator overhaul, parking lot repaving).
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What to check: Look for any large one-time charges or line items referencing upgrades, replacements, or improvements. Cross-reference your lease - most leases explicitly exclude capital expenditures from operating costs, or require them to be amortized over the useful life of the asset rather than expensed in a single year.
2. Management Fees
Property management fees are a legitimate operating expense - but they are almost always subject to a cap in the lease. A common cap is a percentage of gross revenues or gross rents (typically 3-5%).
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What to check: Confirm the management fee in the reconciliation does not exceed the cap defined in your lease. Also check whether the landlord is charging a management fee on top of an already-included administrative overhead charge - that's double-billing.
3. Landlord-Specific or Owner-Only Expenses
Operating costs are meant to cover expenses related to running the building for the benefit of all tenants. They should not include costs that benefit only the landlord or relate to the landlord's ownership structure.
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What to check: Watch for items like mortgage interest, depreciation, income taxes, leasing commissions, costs of vacant space, legal fees related to lease negotiations, and executive salaries. These have no place in an operating cost pool shared by tenants.
4. Excluded Items Defined in Your Lease
Your lease likely contains a specific list of exclusions - expenses the landlord agreed cannot be included in the operating cost pool. This list varies by lease but often includes items like ground rent, costs recoverable by insurance, environmental remediation, and above-market management fees.
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What to check: Pull the exclusions clause from your lease and go line by line through the reconciliation. Any expense matching an excluded category should be removed before your share is calculated.
5. Proportionate Share Calculation
Your share of operating costs is calculated as a percentage of the total leasable area in the building. This sounds straightforward - but errors are common.
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What to check:
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Confirm your rentable area matches what's in your lease.
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Confirm the total building area used in the denominator is accurate and consistent with prior years.
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Check whether your lease uses a "gross-up" clause - which allows the landlord to inflate costs to a 95-100% occupancy assumption even when the building is partly vacant. If it does, verify the gross-up is being applied correctly. If it doesn't, vacant space costs should not be distributed to you.
6. Repairs vs. Improvements
A repair restores something to its original working condition - it's an operating expense. An improvement upgrades or extends the life of an asset - it's a capital expenditure. The line between the two matters enormously for what you can be charged.
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What to check: Large plumbing, electrical, or mechanical line items deserve scrutiny. If a "repair" cost is unusually high, request backup documentation to confirm it wasn't actually an improvement.
7. Administrative and Overhead Charges
Many landlords add an administrative overhead charge on top of actual expenses - sometimes on top of the management fee as well. These charges are only valid if your lease permits them, and they should not be stacked with other management-related fees.
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What to check: Confirm your lease authorizes any administrative fee and that it isn't being double-counted with the management fee.
8. Insurance Costs
Insurance is a standard operating expense, but only the portion that relates to your building. Landlords with multiple properties sometimes allocate a portfolio-wide insurance policy across buildings in a way that doesn't reflect the actual cost for your specific property.
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What to check: Request proof of the actual insurance premium for your building. The amount billed to tenants should not exceed the actual cost.
9. Year-over-Year Consistency
If costs jump significantly from one year to the next without an obvious explanation (major repair, new service contract, property tax reassessment), that warrants a conversation.
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What to check: Ask for a year-over-year breakdown. Unusual spikes in any category - particularly management fees, maintenance, or administrative costs - should be supported by documentation.
Red Flags Summary
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Any single line item that is unusually large with no description
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Management fees exceeding the lease-capped percentage
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Capital improvement costs included as operating expenses
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Administrative fees added on top of management fees
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Proportionate share percentages that differ from your lease
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Costs that appear in one year but not in prior years without explanation
If reviewing your reconciliation feels overwhelming, simplease can do it for you. Our AI analyzes your lease and statement together and flags every charge that doesn't belong.