Advisory — Occupier

Occupancy cost advisory for commercial occupiers

Occupancy cost is among the largest controllable costs a business carries — and the one least often examined independently. We audit the lease and the recovery charges billed on top of it, against what the lease actually permits.

Occupancy cost is not only base rent. The landlord recovers a package of operating costs on top — rates, utilities, insurance, management fees, common area maintenance — apportioned to the tenant under the lease. These recovery charges are derived from the lease, but are seldom checked against what the lease actually permits. The gap between what is billed and what is contractually supportable is real, recurring, and recoverable.

Where the margin leaks

Base rent is contractual and visible; both parties negotiated it and both understand it. Recovery charges are a different matter. They are calculated by the landlord or the managing agent, billed monthly, and rarely tested by the occupier against the lease that governs them. It is the layer of occupancy cost most exposed to error — and the one that sits on the profit-and-loss account, month after month, unexamined.

Six categories of occupancy cost exposure

Each is tested against what the lease actually permits — not against a market benchmark, and not against what is customary, but against the specific wording of the specific lease.

01Rates & municipal servicesAllocations can exceed net municipal cost; rebates and refunds are not always passed through.
02Property management feesFees may be charged at more than one level; permissibility depends on the lease wording.
03InsuranceGroup premiums may be allocated at individual-policy rates, with portfolio savings retained.
04Capex billed as opexStructural and major-plant items may be landlord obligations, not recoverable operating costs.
05Vacant unit absorptionEmpty-unit costs spread across occupied tenants can inflate the per-m² recovery rate.
06Overhead allocationsHead office and administrative charges are recoverable only where the lease permits them.

What a review delivers

Five deliverables per premises — a review that both recovers what has been overbilled and corrects the basis going forward, so the saving is not a one-off.

1
Lease & occupancy cost audit
A structured review of the lease against current recovery billing, line by line, with a findings report per premises.
2
Retrospective claims support
Where overbilling is identified, we prepare and support the claim, subject to the contractual and legal position.
3
Forward billing correction
A corrected recovery methodology going forward, on a verifiable, auditable basis that can be monitored.
4
Lease renewal advisory
An independent market position and negotiating strategy where a lease is approaching renewal.
5
Occupancy cost model
A full total-cost-of-occupancy model per premises, benchmarked per m² and against turnover.

Why independent delivery matters

An occupancy cost review requires an advisor with no relationship interest in the landlord, whose only mandate is the occupier's contractual and commercial position. Prizm has structured and managed commercial leases and recovery regimes from the landlord and investor side for two decades. That experience is now applied entirely in the occupier's interest — we read the landlord's methodology the same way the person who wrote it does, and apply it to what is supportable, what is not, and where the leverage sits.

A programme a head office can sponsor

For a franchisor or group with independent operators, the review can be structured as a sponsored retailer-support benefit. The head office endorses the programme and sets the framework, standards and participation criteria; each operator engages Prizm directly and approves every step. Because the sponsor is neither the landlord nor the party billing recovery charges, there is no channel conflict — the review helps the operator recover from a third party, never from the sponsor.

01
Sponsor endorses
Head office frames the programme as a support benefit and sets the standards.
02
Occupier engages
Each operator chooses to participate and instructs Prizm directly.
03
Prizm reviews
We audit the lease and occupancy costs, and structure the optimisation.
04
Occupier benefits
Corrected charges, improved terms, and a stronger occupancy cost position.

Occupancy cost outcomes depend on the specific lease terms, recovery structures, billing history and market conditions. Nothing here is a representation or forecast of savings.

How Prizm works on an occupancy cost mandate

The same analytical discipline that underpins a capital structuring mandate is applied to an occupancy cost review: market research and financial modelling to the standard used for investment and credit committees, applied to a single lease. No approach to a landlord, claim, negotiation or disclosure takes place without the occupier's approval, and the value is demonstrated premises by premises before any decision to extend.

Related

The full advisory practice → Market research — cost and rental benchmarks → Modelling — the occupancy cost model →

Common questions

What is occupancy cost?
Occupancy cost is the total cost of holding premises under a commercial lease — not only base rent, but the package of operating costs the landlord recovers on top: rates, utilities, insurance, management fees and common area maintenance, apportioned to the tenant under the lease. It is among the largest controllable costs an occupier carries, and the one least often examined independently against what the lease actually permits.
Can a tenant challenge recovery charges billed by a landlord?
Yes, where the charge is not supportable by the lease. Recovery charges are derived from the lease, but are seldom checked against what the lease permits. Where billing exceeds the contractual basis — mis-apportioned rates, capital dressed as operating cost, vacant-unit absorption, or overhead allocations the lease does not allow — the gap is recoverable, subject to the contractual and legal position.
Why use an independent advisor rather than the landlord's managing agent?
The managing agent constructs and administers the recovery methodology. An occupancy cost review requires an advisor with no relationship interest in the landlord, whose only mandate is the occupier's contractual and commercial position — able to read the methodology the same way the party who wrote it does.
Can a franchisor or head office sponsor a review for its retailers?
Yes. A head office can endorse the programme as a retailer-support benefit and set the framework, while each retailer engages the advisor directly and controls every step. The sponsor is neither the landlord nor the party billing recovery charges, so there is no channel conflict — the review helps the retailer recover from a third party, never from the sponsor.

Carrying occupancy cost you have never had tested?

A quiet conversation, first — no agenda beyond the outcome of the work.

Start a conversation →