A significant spending outlay for major building improvements or replacements — such as a new roof, HVAC system, or elevator — that provides benefit over multiple years and is typically excluded from tenant operating expense obligations.
Capital expenditures (CapEx) are distinct from routine maintenance and repairs (OpEx). In most well-negotiated leases, tenants exclude true CapEx from operating expense pass-throughs. However, landlords sometimes attempt to amortize CapEx into operating expenses over the asset's useful life, passing annual amortization to tenants — particularly for items that reduce operating costs or are required by law. Tenants should define CapEx by dollar threshold (e.g., any single expenditure over $10,000) and ensure amortized CapEx is limited to cost-saving or legally required items, with their pro-rata share limited to the amortized portion within the lease term.
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