Three months into a new lease, the managing agent’s invoice shows up, and the tenant calls me. They negotiated hard on base rent and felt good about the number on page one. Then the bill arrives with charges they don’t recognize, and the good deal stops feeling like one.
I’ve represented tenants since 2004, and every now and then have gotten this call. The cause is always the same. Base rent is what tenants fight over. The rider underneath is where the rest of the economic liability is. It’s also where most tenants lose ground they didn’t know was on the table.
Utility charges, building services, and common area maintenance. Landlords recovering these from tenants is standard Manhattan practice, and the lease spells it out, but the rider gets skimmed while the headline rent gets scrutinized. The result is another 10 to 25 percent on top of base rent, higher in trophy buildings, all of it negotiable if you catch it before signing a commercial office lease
So let’s open it up. What these charges really are, what they cost, who pays them, and where the landlord will fold if you push.
Utilities: Electricity, Water and Sewer, Gas
Real utility charges are the cleanest of the three buckets because the providers are public and the rates are published. Con Edison handles electricity and gas. NYC DEP handles water and sewer. But whether you get billed directly or whether your landlord pays first and marks it up before billing you depends on the lease structure. That structure then determines how much of the cost you ever get to see, push back on, or audit.
Four line items show up under this bucket, and three of them hit almost every commercial lease. The fourth, gas, only matters if your operation involves a kitchen.
Electricity
Electricity is the biggest utility line for almost every office tenant. Yet, base rent almost never includes it. Three billing methods exist in Manhattan, and the structure you end up with usually matters more than the underlying rate.
- Direct Meter: You open an account directly with Con Edison, and they bill you each month. This setup is most common on full-floor and retail leases where the space has its own dedicated meter. Residential customers in NYC blended around $0.23 per kWh in May 2026 per EnergySage, while commercial rates vary widely by demand tier, time-of-use schedule, and supply contract. Con Edison also raised typical electric bills by 3.5 percent this year, with further increases of 3.2 percent and 3.1 percent scheduled for 2027 and 2028.
- Submeter: Full floors always have one, and partial floors above a few thousand square feet usually do as well. If your space doesn’t come with a submeter, installation is something you can negotiate into the deal. The landlord reads the meter each month, bills you for your measured usage, and marks the cost up by roughly 6 to 18 percent. You’ll pay more than you would on a direct meter, but the structure still beats rent inclusion in most situations.
- Rent Inclusion: A flat per-square-foot charge baked into the rent with no metering involved. Class B and C buildings typically quote rent inclusion in the $3.00 to $3.50 range, though numbers above that used to be rare and are showing up more often now.
Direct metering is the cheapest because there’s no markup involved, and submetering is the next best option. Both almost always beat rent inclusion for a lean operation running standard hours without servers or heavy after-hours use, and the difference between structures adds up fast over a full lease term.
Take a tenant paying $3.50 per RSF on rent inclusion. On a direct meter, that same tenant might pay closer to $2.00 per RSF for what they’re actually using. The $1.50 spread sounds small on paper, but on a sizable space over a ten-year term it turns into real money the tenant could have kept.
Water
How water gets charged depends on the building class. Class A multi-tenant buildings bundle it into base rent, so you won’t see a separate line item. Class B and C buildings break it out as a fixed monthly add-on, usually somewhere between $60 and $150 for a typical office tenant, with larger or higher-use spaces running higher than that.
The number isn’t arbitrary. It traces back to the underlying NYC rate, which sets the floor on any landlord pass-through. For fiscal year 2026, NYC DEP charges $5.05 per 100 cubic feet of water consumed, which works out to roughly 748 gallons. The NYC Water Board FY 2026 Rate Schedule has the full breakdown.
Rather than metering every tenant, most landlords estimate the charge upfront using headcount and square footage, then quote a flat monthly number. That’s why your bill barely moves regardless of how many coffee runs your team makes. Many leases, though, include a provision letting the landlord adjust the figure later if a survey shows your actual usage runs higher, so the quoted amount isn’t always the final word.
The tenants who get flagged for supplemental billing are the ones running water-intensive operations: medical and dental offices, restaurants, salons, and certain manufacturing uses like jewelry production. If that’s you, expect the landlord to track your consumption more closely and bill accordingly.
Sewer
Sewer is the line item nobody negotiates because it follows water automatically. NYC DEP calculates the sewer charge at 159% of the water charge, which means every dollar of water consumption pulls another $1.59 of sewer along with it. The FY 2026 sewer rate works out to $8.02 per 100 cubic feet, and combined with water, you’re looking at $13.07 per 100 cubic feet all-in.</p></p>
One thing worth knowing: if your operation uses water that doesn’t end up going back into the sewer system, you may qualify for a wastewater allowance. Cooling towers, irrigation systems, and certain manufacturing processes are the usual qualifying categories, and most office tenants won’t ever cross that threshold.
If you’re running anything specialized, though, the application is worth the paperwork.
Gas
Gas is rarely a tenant utility in Manhattan office leases, mainly because heat comes from central building systems (steam or hot water) and gets bundled into base rent. It only shows up on your bill directly from Con Edison if your space has dedicated cooking equipment, which in practice means restaurants, ground-floor retail, test kitchens, and certain labs.
If gas matters for your operation, pay attention to where pricing is heading. Con Edison’s FY 2026 rate case raised typical gas bills by about 4.4% this year, with steeper increases of 5.7% and 5.6% scheduled for 2027 and 2028.
What’s more, New York’s electrification push under Local Law 97 has made new commercial gas hookups harder and more expensive in retrofit scenarios. That’s why, if you’re signing a long lease that depends on gas, push that into the build-out conversation upfront.
Building Services: HVAC, Sprinkler, Guard, Cleaning
Building services run on different economics from utility charges. Con Edison and NYC DEP publish their rates publicly, but HVAC, sprinkler, guard service, and cleaning all run on building staff payroll, contractor invoices, and whatever standard the building’s management agent decides to set. That gives the landlord much more discretion in how they price each item.
Building class drives most of the variation. Class A buildings tend to bundle everything into base rent, Class C buildings charge à la carte for almost everything, and Class B sits in the middle, where most of the real negotiation happens.
HVAC
HVAC during building standard hours (typically 8 a.m. to 6 p.m. on weekdays and 9 a.m. to 1 p.m. on Saturdays) is included in base rent across basically every multi-tenant Manhattan office. The expensive part of HVAC, the part that catches tenants off guard, is overtime: running the system outside those windows pulls hourly charges that vary widely by building class.
2026 rates run like this:
- Class A buildings: $100 to $175 per hour per zone. Trophy properties sit at the top of that range.
- Class B buildings: $80 to $125 per hour per zone.
- Class C buildings: $70 to $100 per hour, with more flexibility on caps and free hours.
Sprinkler Charges
Sprinkler charges cover annual inspections, system testing, and FDNY compliance reporting, and Class A buildings almost always include the cost in base rent. Class B and C buildings break it out as a fixed monthly fee, typically $50 to $200, but can be much more depending on square footage and building age. The dollar amount is small on its own, but attempt to negotiate the amount or even the removal of this, because otherwise the landlord can re-price it mid-term and you have no leg to stand on.
Guard and Security
Class A buildings include a staffed lobby as part of what the premium pays for, which means guard service shows up inside base rent rather than as a separate line item. B buildings split the field, and some operators bundle guard service into rent, while others bill it separately. And C buildings frequently have no on-site security at all, and tenants rely instead on buzzer systems and after-hours card access.</p>
If a staffed lobby matters for your business (clients walking in, late-night work, regulated industry), the call becomes a building selection question rather than a line-item negotiation.
Cleaning and Trash
Class A and most Class B buildings bundle cleaning into base rent without breaking it out as a separate charge. Class C buildings often push the responsibility back to the tenant, particularly the side street loft buildings and small older boutique buildings in Noho/Soho and the Garment District, where landlords have never bothered to set up a cleaning program. Tenants contracting their own cleaning typically run $1.50 to $3.00 per RSF annually, and unless the amount of rubbish increases or decreases drastically, $200 to $400 a month for sub 2,500 SF offices is about the going rate.
Escalations
Every Manhattan lease passes the building’s cost increases through to the tenant in some form. Staff payroll, real estate taxes, insurance, repairs, and now Local Law 97 carbon penalties all feed into an annual bump that grows each year you’re in the space. Over a 7- or 10-year term, escalations move serious dollars, which is why the structure matters as much as the percentage.
The counterintuitive part is that escalations can work in the tenant’s favor in the right building. Well-run Class A buildings that stay close to fully leased often hold operating costs relatively flat year over year. The resulting pass-through can then land below the standard 3 percent annual bump tenants are used to seeing. Strong management and stable occupancy translate directly into a smaller hit on your bill. Aka, the opposite of what most tenants expect when they see “escalation” in a lease.
Manhattan landlords use two main methods to calculate the annual increase, and real estate taxes sit in their own clause. Which structure applies depends on the building class and what’s being charged for.
Base Year: the Methodology, Not an Escalation
Base year isn’t an escalation on its own. It’s the reference point landlords use to calculate operating expenses and real estate tax escalations. First, the landlord sets a base year at lease commencement. Then, every year after, you pay your pro-rata share of how much the building’s costs or taxes have risen above that base. The structure is common in Class A.
The trap to watch for is a soft base year. In other words, one where building costs were artificially low because of:
- A renovation
- Atax abatement
- An insurance credit
A low base makes every increase after it look bigger, and you pay accordingly. Always have your broker compare the base year to the three prior years before you sign.
Fixed Percentage Escalation
This is by far the most common structure in Class B and C buildings. The landlord adds a flat 2.5 to 3 percent to the base rent every year. Regardless of what’s happening to building costs.
The percentage itself matters less than people think. The lease term is what drives the damage. On a 3-year deal, you only see two escalations, so the gap between 2.5 and 3 percent is negligible. A 5-year lease nets you four escalations and some compounding starts. Then, on a 10-year lease, you’re looking at nine escalations and a structure that does real work on your rent.
Whether the bump stacks on last year’s rent or stays flat against year-one rent is also negotiable. On a long lease, that distinction alone can swing tens of thousands of dollars.
Real Estate Taxes
Real estate taxes sit in their own clause and swing the hardest of any escalation in the lease. Some Midtown buildings have seen double-digit hikes since 2023, which is why asking for a cap is more than reasonable. Our commercial rent escalations guide walks through the negotiation in detail.
What the Headline Number Hides
Before you sign anything, walk through it line by line.
- How is electricity billed? Submetered or included in rent?
- What’s the water and sewer add-on?
- Is the sprinkler bundled or separate?
- Who pays for guard service and cleaning?
- What does overtime HVAC cost, and how many overtime hours will you really run?
- Is the OpEx escalation based on a base year or a flat percentage, and does it compound?
Add it all up. Then add up the building next door. A Class C at $49 a foot routinely costs more than a Class A at $62 once everything stacks. By year three, the gap is usually unmistakable and the lease still has four years left.
All of it matters more in 2026 than it has in years. Availability sits at 14.6% per Avison Young, prime space is pushing $250 a foot, and landlords aren’t discounting base rent.
The savings are in the line items. They’re worth real money if you push.
