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Guide · Recoveries

What is an operating cost reconciliation?

By Chris Rencken · Last reviewed 17 October 2026

During the year, many tenants pay a provisional monthly amount towards the costs of running the building, based on the landlord's estimate. An operating cost reconciliation compares what you paid with the actual costs for the period, calculated according to your lease. Depending on the lease, the difference may be refunded, invoiced, carried forward, or used to adjust your future provisional amounts.

How it works

A typical cycle looks like this:

1. Budget. Before the year starts, the landlord estimates the building's operating costs.
2. Provisional payments. You pay your share of the estimate each month, usually on your statement as "operating costs" or "recoveries".
3. Actual costs. After the year ends, the landlord totals what was actually spent.
4. Reconciliation. Your share of the actual costs is compared with what you paid, and the balance is settled in the way the lease provides.

Your share is set by the lease. Many leases use your area as a proportion of a defined building area. Others use a participation quota, an agreed percentage or another formula. Check which one yours uses.

What a reconciliation should show

A useful reconciliation lets you follow the calculation from start to finish. It should show:

• the actual costs for the period, by category;
• your share and how it was calculated, including the areas or percentage used;
• what you paid during the period;
• the resulting balance;
• any audit or accountant's confirmation that the lease requires.

If you receive only a single balance with no workings, ask for the calculation.

Worked example (illustrative)

The figures below are fictional and for illustration only.

A tenant leases 250 m² in a building with 5,000 m² of lettable area. The lease allocates operating costs by area, so the tenant's share is 250 ÷ 5,000 = 5%.

• Budgeted costs: R2,400,000. The tenant pays 5% = R120,000, or R10,000 a month.
• Actual costs: R2,640,000. The tenant's share is 5% = R132,000.
• Balance on the landlord's reconciliation: R132,000 less R120,000 = R12,000 due.

Scenario 1: an excluded capital item. Suppose this illustrative lease excludes capital costs, and the full R300,000 cost of a roof replacement was included in the actual costs on the reconciliation. Without it, actual costs are R2,340,000, the tenant's share is R117,000, and the tenant has overpaid by R3,000. The swing is R15,000.

Scenario 2: a different building area. This is a separate scenario, using the original R2,640,000 of actual costs. If the landlord divides by the occupied area of 4,000 m² instead of the full 5,000 m², the tenant's share rises to 6.25%, or R165,000. Whether that is allowed depends on what the lease says about vacant space.

What to check

1. Capital or maintenance?

Leases often treat ordinary maintenance and capital spending differently. A roof repair may be maintenance; a roof replacement may be capital in nature. The classification depends on the facts and the lease wording, so look closely at large or unusual items.

2. Costs the lease excludes.

Many leases exclude some costs from recovery. Check each category against the operating cost definition.

3. Vacancy.

If some units are empty, check how the lease deals with their share. Any adjustment for vacancy, sometimes called a gross-up, needs a basis in the lease.

4. The building area.

Check that the area used to calculate your share matches the lease and has not changed without explanation, for example after an extension or a subdivision.

5. Timing.

Your lease may specify when the reconciliation must be issued and how long you have to question it. For illustration, a lease might require the reconciliation within three or six months after year end. Check the dates in your lease, including your own deadline to raise a query.

6. A reconciliation that never arrives.

If your lease requires a reconciliation and you have not received one, raise it with the landlord. You may be paying provisional amounts that have never been tested against actual costs.

Can I see the invoices?

Some leases give tenants a right to inspect the invoices and records behind the reconciliation. Others are silent or set conditions, such as notice periods or limits on timing. Check your lease before you ask, and make the request in writing.

What about benchmarks?

Industry operating cost benchmarks, including SAPOA research where available, can help identify charges that deserve closer examination. A benchmark does not override the lease or establish that a charge is incorrect. Its best use is to flag a cost level or year-on-year movement worth asking about.

Documents to request

• The reconciliation itself, with full workings.
• The lease clauses on operating costs, the allocation method, vacancy and reconciliation timing.
• The budget for the period and your statements showing what you paid.
• Supporting invoices for large or unusual items, where your lease allows inspection.

Want your reconciliation checked?

A TenSure Check tests your recoveries, including the annual reconciliation, against what your lease allows. TenSure Watch keeps checking them each year. Start with a TenSure Check or see a sample report.