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How to check a TMI reconciliation, line by line

Frontage · 9 October 2026 · 13 minute read

Every year a tenant on a net lease gets a statement that turns twelve months of estimated TMI into the real figure, and usually a bill for the difference. Most tenants pay it. The statement is usually a one-page summary, and the overcharges that tenants and their brokers find in it recur: a gross-up applied to costs that do not vary, a new roof charged in one year, an administration fee on the tax bill. Here is how to check one, line by line, with the Canadian cases behind each point.

A worked example: the landlord's statement shows the tenant owing $4,075; corrected for a fixed cost grossed up, a roof charged in one year and an administration fee on taxes and insurance, the landlord owes the tenant $7,255. — Our worked example below: three corrections turn a $4,075 bill into a $7,255 refund.

Key takeaways

The statement is a summary; the backup is yours to ask for. Ask for it even without an audit clause ^[2], and in Ontario a court has implied a duty to deliver tax bills, insurance premiums and management invoices with the annual adjustment ^[17].
The same few items cause most overcharges: gross-ups, capital costs, administration fees, the building area your share is divided by, and the tax allocation method ^{[1, 5, 12]}.
Each one turns on the lease wording. Courts have refused charges a net lease did not expressly allow ^{[12, 15, 16]}, and allowed broad wording to cover a $5.5 million restoration ^[23].
The clock runs. In Ontario a tenant recovering overpaid TMI is generally limited to the last two years ^{[7, 8]}; the objection window in the lease is often shorter ^[1].

How the year-end statement works

During the year the tenant pays monthly instalments of TMI on the landlord's estimate, because the actual costs are not known until the year ends; afterwards the landlord compares the estimate with the actual costs, bills any shortfall and refunds any excess ^[1]. Ontario leases commonly set a delivery deadline, for example within 120 days of year end, and a top-up is usually due within 30 days of the statement ^[4]; in Quebec practice the norm is 90 or 120 days after each year end ^[3]. Two habits to watch for. Some landlords skip the reconciliation for years while raising the estimate each year, and a tenant can negotiate that the estimate does not rise until the statement arrives ^[5]. And leases often give the tenant a short window to object: in one lease studied, six months ^[1].

The seven places overcharges hide

What to check on a TMI reconciliation, and what decides it
Item	What goes wrong	What decides it	Source
Gross-up	Costs that do not vary with occupancy (insurance, snow, landscaping) grossed up as if the building were full	Only variable costs should be grossed up; tenants can ask for 95% occupancy, not 100%, and a no-profit clause	^{[11, 12, 1]}
Capital costs	A roof or parking lot charged in full in one year, or amortized with interest the lease does not allow	Without wording that allows it, amortization and interest cannot be passed through; amortize over useful life	^{[12, 2, 5]}
Administration fee	15% charged on taxes and insurance, or on top of a separate management fee	Only what the lease expressly allows; the fee is commonly excluded from taxes, insurance and capital	^{[15, 16, 5]}
Your share	Large tenants, kiosks or storage taken out of the building area your share is divided by	The denominator is often not stated in the lease: ask for it	^{[5, 1]}
Remeasurement	A new BOMA measurement raises your area, and with it base rent and TMI	Cap upward adjustments	^[2]
Property tax	The allocation method changed from year to year, or an assessment reduction not credited	Discretion to allocate must be exercised reasonably and consistently	^{[18, 16, 1]}
Utilities	Shared by area without check meters, so low users pay for high users	Ask for utility bills with the statement	^[1]

Gross-up. A gross-up lets the landlord state variable costs as if the building were fully occupied, so the tenants in a part-empty building do not get a windfall ^[11]. Without one, a sole tenant in a building 30% vacant would pay 70% of costs it generated entirely ^[12]. The problem is the reverse: a gross-up applied to fixed costs such as property insurance, landscaping or snow removal ^[1], which do not fall when space is empty. Blakes advises tenants to limit the gross-up to variable expenses and to 95% occupancy ^[11], and a practitioner notes it is not expected that a court would permit any gross-up without express wording ^[12].

Capital costs. Whether a capital item can be charged at all depends on the lease. In RioCan Holdings v. Metro Ontario Real Estate (2012 ONSC 1819), a $431,000 parking-lot rehabilitation was a capital expenditure excluded by the lease, even though the landlord had amortized it over 20 years ^{[6, 13]}; in Parsons Precast v. Sbrissa (Ontario, 2012) repaving a lot nearly 20 years old was replacement, not repair, and the tenant did not pay its $14,533 share ^{[13, 14]}. In British Columbia, Trenchard v. Westsea Construction (2019 BCSC 1675) went the other way: broad "maintenance, operation and repair" wording that did not separate capital from other costs let the landlord recover a $5.5 million restoration ^[23]. Where capital costs are allowed, tenants should insist they are amortized over the life of the repair ^[2], and interest on the unamortized balance needs wording of its own ^[12].

Administration and management fees. Leases charge administration fees of generally 15% of operating costs, or management fees of generally 4% of gross revenue ^[12]. A net or "carefree" clause does not by itself allow either: in C.C. Tatham & Associates v. 2057870 Ontario (2011) the court refused fees the lease did not provide for ^{[15, 16]}, and older Ontario decisions refused an unagreed 15% fee as "an arbitrary surcharge" ^[12]. Where both are charged, a 15% administration fee on top of management fees is a "double dip", and the fee should not apply to insurance, taxes, capital costs or depreciation ^[5]. A BC appeal court enforced both where the lease expressly allowed both ^[12].

Property tax. Taxes are typically shared by rentable area, so the landlord carries the share on vacant space ^[21]. In 100 Bloor Street West v. Barry's Bootcamp (2025 ONCA 447) the Court of Appeal held that a discretion to allocate taxes must be exercised reasonably ^[18], and in OGT Holdings v. Startek (Ontario, 2009) a landlord that had used one method for years could not switch retroactively ^[16]. Ask for the assessment notices and tax bills, and check that any assessment reduction reached you ^[1].

Audit rights, and what to ask for

Treadstone suggests negotiating the right to inspect the records within 12 to 18 months of the statement, with the landlord paying for the audit if it finds overcharging beyond a threshold such as 3 to 5% ^[4]; a Canadian lease auditor reports look-back windows of 12 to 36 months ^[20]. Without an audit right a tenant must settle for what the landlord provides ^[1], but in Ontario the court in 1877352 Ontario Inc. v. 699147 Ontario Inc. (2016) found it commercially reasonable to imply a term requiring the landlord to deliver, with the annual adjustment, "a copy of all of the documents, such as tax bills, insurance premiums, property management invoices" behind it ^[17]. A confidentiality agreement answers most landlords' objections ^[1]. Ask for:

the property tax bills and assessment notices ^{[17, 1]};
the insurance premiums and the property and period they cover ^[17];
property management invoices and service contracts, such as snow removal and landscaping ^{[17, 1]};
utility bills ^[1];
the building area and the list of premises excluded from it ^[5].

How far back you can go

Limitation periods for recovering overpaid additional rent
Province	Rule	Source
Ontario	Two years from when the tenant ought to have known; in 2026 the Court of Appeal held the period runs from each overpayment, limiting recovery to the two years before the claim. A landlord's claim for rent arrears has six years.	^{[7, 8]}
British Columbia	Two years from discovery of the claim.	^[9]
Alberta	Two years from when the claimant knew or ought to have known, or ten years from when the claim arose, whichever comes first.	^[10]
Quebec	Three years for a personal right; applying it to overpaid additional rent is our reading, not a source's.	^[22]

The lease can be shorter than the statute: Ontario allows business agreements to vary limitation periods ^[7], and many leases deem a statement final if the tenant does not object within a set window ^[1]. Diary both dates when the statement arrives.

A worked example

This example is ours, built from the issues above; the figures are hypothetical. The lease allows a gross-up of variable costs to 100% occupancy, a 15% administration fee on operating costs but not on taxes or insurance, and capital items amortized over their useful life without interest. The building is 50,000 square feet and 80% occupied; the tenant has 5,000, a 10% share, and paid $54,000 in estimates.

The landlord's statement, and the same statement corrected ($)
Line	As issued	Corrected	Why
Property taxes	250,000	250,000
Insurance	30,000	30,000
Repairs and maintenance (incl. a $60,000 roof)	150,000	93,000	Roof amortized over 20 years: $3,000 a year
Janitorial ($40,000 at 80% occupancy)	50,000	50,000	Variable: gross-up allowed
Snow and landscaping ($20,000)	25,000	20,000	Fixed: no gross-up
Administration fee, 15%	75,750	24,450	On operating costs only, not taxes or insurance
Total	580,750	467,450
Tenant's 10% share	58,075	46,745
Less estimates paid	54,000	54,000
Result	Tenant owes 4,075	Landlord owes 7,255

The tenant's share was overstated by $11,330, about 24% above the correct figure, well past a 3 to 5% audit-cost threshold. Whether the roof could be charged at all depends on the lease wording, as RioCan, Parsons Precast and Trenchard show ^{[6, 13, 23]}. And if the landlord had taken a 10,000 square foot anchor out of the building area, the tenant's share would rise from 10% to 12.5% before any other line was touched.

The checklist

Diary the dates: the statement deadline in the lease and the objection or audit window that starts when it arrives ^{[3, 4, 1]}.
Ask for the backup, audit clause or not: tax bills, insurance premiums, management invoices, utility bills, service contracts ^{[2, 17]}.
Recompute your share: your rentable area, the building area, and which premises are left out of it ^{[5, 1, 2]}.
Check the gross-up: is there one, to what occupancy, and on variable costs only ^{[11, 12]}?
Check the administration fee: is it in the lease, on what base, and is it on top of a management fee ^{[15, 5]}?
Find the capital items: roof, paving, HVAC. Excluded, or amortized over their life ^{[6, 13, 2]}?
Check the exclusions: financing, leasing commissions and inducements, costs recovered from insurance or other tenants, head-office salaries ^[5].
Check taxes: the same allocation method as last year, and reductions credited ^{[18, 16, 1]}.
Compare with any cap on increases, though most leases have none ^[19].
If the overcharge passes the lease threshold, claim the cost of the audit ^[4].

For what TMI covers and what it costs by market, start with TMI in real estate: what it means and what it costs.

Questions

What is a TMI reconciliation?

The year-end statement that compares the TMI a tenant paid in monthly estimates with the landlord's actual taxes, maintenance and insurance costs. The tenant pays any shortfall and is refunded any excess.

Can a tenant audit the landlord's operating costs?

If the lease gives an audit right, yes, usually within a set window such as 12 to 18 months. Without one, a tenant can still ask for the backup, and an Ontario court has implied a duty to deliver tax bills, insurance premiums and management invoices with the annual adjustment.

Who pays for a lease audit?

Usually the tenant, unless the audit finds overcharging beyond a threshold set in the lease, commonly 3 to 5%, in which case the landlord pays.

Can a landlord charge capital costs as TMI?

Only if the lease allows it, and Ontario courts have excluded parking-lot rehabilitation and repaving where it did not. Where capital costs are allowed, tenants should insist they are amortized over the useful life of the work.

How far back can a tenant recover overpaid TMI in Ontario?

Generally two years. In 2026 the Ontario Court of Appeal held that the limitation period runs from each overpayment, so a tenant recovered only the two years before it started its claim. The lease may set a shorter window to object.

What is a gross-up clause?

A clause that lets the landlord calculate variable operating costs as if the building were fully occupied, so tenants in a part-empty building pay a fair share. It should apply only to costs that vary with occupancy, not to insurance, snow removal or landscaping.

Frontage keeps each lease's TMI, its statement dates and its audit window on the lease record, and the reminders come to you before the window closes.

See the pricing TMI explained

Sources

Canadian law firms, court summaries, statutes and practitioner papers, current to October 2026. CanLII decision pages could not be opened directly; each case is cited through a firm's or CanLII Connects' summary of it.

General information for real estate professionals and tenants, not legal, tax, accounting or commercial real estate advice. Figures are as published by each source at the dates shown and have not been independently verified. Lease terms and laws differ by province and by lease: read the lease itself and consult a qualified adviser before acting or advising a client.