Most landscape vendors think a property manager cares about grass. The manager cares about something else: the line in the year end reconciliation that did not pass through to the tenants, and the email from the owner asking why net operating income came in under budget.
On a commercial property, landscaping is not just a service. It is a controllable operating expense. That classification decides who pays when the landscape bill goes up, and in many leases the answer is the owner, not the tenants. This article explains how that works, why it puts the property manager’s name on the variance, and what to look for in a landscape contract so it does not happen.
Every lease is different. This article explains common lease structures in plain language. It is not legal or accounting advice.
How Operating Expenses Reach the Tenant
In most office, retail and industrial leases, tenants pay their share of the property’s operating expenses on top of base rent. These are often called CAM charges, for common area maintenance. The landlord estimates the expenses at the start of the year, bills tenants monthly, and reconciles against actual costs at year end.
Landscaping is one of those expenses, along with janitorial, security, parking lot maintenance, trash removal, management fees, property taxes and insurance. If the expense is recoverable under the lease, the tenants pay their share and the owner’s income is protected.
Controllable and Uncontrollable Expenses
Tenants know operating expenses can rise, so many negotiate a cap. Leases usually split expenses into 2 groups.
Uncontrollable expenses are set by someone outside the property: property taxes, building insurance and, in many leases, utilities. The landlord cannot negotiate them down, so tenants usually accept that these pass through without a cap.
Controllable expenses are the ones the landlord, through its property manager, chooses and negotiates. Landscaping is the textbook example, along with janitorial, parking lot maintenance and trash removal. Because the landlord controls them, tenants often insist that their annual increase be capped.
Caps on controllable expenses commonly fall in the range of 3 to 10 percent a year, depending on the market and the lease. With a 5 percent cap, the controllable expenses a tenant can be charged next year cannot exceed 105 percent of this year’s.
What Happens When the Landscape Bill Jumps
Here is the part that rarely comes up when a landscape contract is signed.
Say a property’s controllable expenses total $200,000 this year and the leases carry a 5 percent cap. Next year the tenants can be billed for up to $210,000. Now say the landscape contract renews with a 12 percent increase, and the vendor bills another $15,000 in extras for plant replacement, irrigation repairs and storm cleanup. Add normal increases in the other controllable lines, and actual controllable expenses come in at $221,000.
The tenants pay $210,000. The other $11,000 does not pass through. It lands on the owner and reduces net operating income.
Those numbers are an example, not a benchmark, but the mechanism is real. Every dollar of landscape cost above the cap is a dollar the owner absorbs. And the person who has to explain it is the property manager, on the variance report, to an owner or asset manager who reads every line.
Why It Matters More Than the Contract Price
A manager can negotiate a fair contract price and still end up with a landscape line that grows faster than the cap. The growth usually comes from 3 places.
Extras. Plant replacement, irrigation repairs, mulch top ups, seasonal color and storm work are often billed outside the base contract. They are easy to approve 1 at a time and hard to see in total until the reconciliation.
Renewal increases. A low first year price followed by a large increase at renewal is common. The first year looks good. The third year does not.
Vendor turnover. When a vendor is replaced, the new vendor often prices in the deferred work the old one left behind. That shows up as a one year spike in a controllable line.
None of these are visible in a bid comparison. All of them show up on the variance.
Recoveries Cut Both Ways
There is an important caveat. On a property where landscaping is fully recoverable and the tenants are under their cap, landscape cost is largely tenant money. In that case the owner’s main concern is not the dollar amount but whether tenants complain about the charges at reconciliation, and whether the property looks the way a tenant expects for what they pay.
So the right question is not simply how to make landscaping cheaper. It is how to make the landscape line predictable, so it stays inside the cap, and documented, so every charge can be defended to the tenant who audits it and the owner who reviews it.
What to Look for in a Landscape Contract
If your leases cap controllable expenses, these contract terms protect you.
- A named scope with named exclusions. You should be able to see in writing what is included and what will be billed separately. Vague scopes produce extras.
- Extras priced and approved in writing before work starts. No surprise invoices at the end of the month.
- A stated renewal escalator. Know next year’s price before you sign this year’s contract, so you can budget it against the cap.
- A plant warranty that covers replacement. Plant loss is one of the largest sources of extras. A warranty moves that cost back to the vendor.
- Reporting after every visit. When a tenant questions a charge at reconciliation, you need a record of what was done and when.
- An invoice that matches the scope. Same line items, same format, every month, so the landscape line in your budget is easy to track.
What We Do About It
Green Image writes every proposal in the same format, with a named scope and named exclusions, and the invoice matches what the owner approved. Extras are proposed in writing, with photos, before any work starts. After every visit, the manager receives photos and a short written note on what was done and what needs attention next, so there is a record for every charge. When Green Image runs the full program on a property, covering maintenance, irrigation, and fertilization and pest control, every plant and tree we install and maintain is warranted for life. If one dies, we replace it.
If you manage commercial property, download The Property Manager’s Guide to Managing Landscaping Vendors for the full vendor meeting, scorecard and RFP process, or get a quote. We will walk the property and send you a written proposal within 72 hours.
Frequently Asked Questions
Is landscaping a controllable expense in a commercial lease?
In most leases, yes. Landscaping is usually classified as a controllable operating expense because the landlord chooses and negotiates the vendor. Check the operating expense section of your leases to confirm.
What is a typical cap on controllable expenses?
Caps commonly fall between 3 and 10 percent per year, depending on the market and the lease.
Who pays when controllable expenses exceed the cap?
Under the cap, the excess generally cannot be charged to the tenant, so the landlord absorbs it and net operating income drops. Confirm the treatment in each lease.
What is the difference between a cumulative and a non cumulative cap?
A cumulative cap lets unused room carry forward to later years. A non cumulative cap resets each year. Landlords usually prefer cumulative caps and tenants usually prefer non cumulative ones.
