How to Calculate TMI

The formula in three steps

1. Add up annual Taxes (municipal property taxes + business improvement area levies if applicable) + Maintenance (operating costs, snow, landscaping, HVAC service, common area utilities, security, management fees) + Insurance (commercial property insurance premium).
2. Divide by the building’s rentable square footage (usually rentable, not usable; check your measurement standard).
3. Multiply by each tenant’s rentable area to get their annual TMI; divide by 12 to bill monthly.

Worked example

A 20,000 sq ft retail strip plaza has $100,000 annual property tax, $80,000 annual operating costs, and $20,000 annual insurance premium. Total = $200,000. Divided by 20,000 sq ft = $10/sq ft/year TMI rate. A tenant occupying 2,000 sq ft pays $10 × 2,000 = $20,000/year TMI, billed at $1,667/month on top of their base rent.

What’s typically included in operating costs

• Common area utilities (lobby, parking, exterior lighting).
• Snow removal, landscaping, parking lot maintenance.
• HVAC servicing for common areas (and sometimes tenant areas).
• Property management fees — typically capped at 3–5% of gross rents.
• Security, life-safety inspections, fire alarm monitoring.
• Garbage and recycling.
• Reserves for short-life capital items (sometimes; lease-dependent).

What’s typically excluded

• Capital improvements that extend the life of the building (e.g., new roof, structural repairs).
• Costs caused by the landlord’s negligence or breach of warranty.
• Leasing commissions and tenant inducements.
• Income tax, large fines, and corporate overhead.

Estimates vs. reconciliation

Landlords bill TMI monthly based on a budgeted estimate. After year-end, they prepare actual operating cost statements and reconcile against billed amounts. Tenants are charged the shortfall or refunded the surplus. Most leases give tenants audit rights over the reconciliation — use them, especially in larger spaces.

Frequently Asked Questions

Why is TMI so much higher in some buildings than others?

Property tax rates vary by municipality and assessment class. Older buildings have higher maintenance costs. Concierge or full-service buildings have higher operating costs. Always compare gross occupancy cost (base + TMI), not just base rent.

Can TMI ever be lower than estimated?

Yes — if actual operating costs come in under budget at year-end, tenants get a refund or credit. This is exactly what audit rights protect.

Do TMI components escalate at the same rate?

No — property tax follows reassessments and tax-rate changes, insurance follows hard/soft market cycles, and maintenance follows inflation plus building age. Budget for non-uniform escalation.