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Forvaltningskostnader (management costs)

Forvaltningskostnader are the fixed costs a building incurs whether or not it is in use. Typical items are municipal taxes and charges, property insurance, property administration, accounting, auditing and board work. The term is most often used about commercial property, where these costs go into a yield calculation.

The term comes from NS 3454 Livssykluskostnader for byggverk (life-cycle costs for construction works), where "F" is the first of the categories F (forvaltning, management), D (drift, operation), V (vedlikehold, maintenance), U (utskifting/utvikling, replacement and development) and S (service, support to the core business), known together as FDVUS. The standard provides a chart of accounts so that owners can compare costs across their portfolio and against benchmark figures from providers such as Holte and OPAK.

Unlike operation, maintenance and service, which vary with use, wear and tenant service, management costs are fixed. They continue even if the building stands empty, so they must be budgeted independently of the rental income. That makes them a critical item in a property analysis, particularly in a yield calculation: the management costs are deducted from the gross rental income together with operation and maintenance to arrive at the net rental income, which is then the numerator in the yield.

Who actually pays what depends on the lease. In commercial property, several models are common:

  • "Triple net" leaves the tenant to cover insurance, property tax and maintenance, while the owner is left with administration and major maintenance.
  • "Net" or "double net" varies in which costs are passed on.
  • "Gross" leaves the owner to cover everything and invoice the tenant a single, combined rent.

The model is reflected in the market rent: a triple net lease has a lower stated rent, but the tenant carries more of the cost.

Documented FDV documentation is also a requirement when a new building is handed over under byggteknisk forskrift TEK17 (the Norwegian building regulations), and it forms part of the final documentation delivered together with the ferdigattest (completion certificate). For owners, an up-to-date FDV package is worth a lot, both in operation and in any later sale.

From Placepoint's dictionary: Forvaltningskostnader

More information: Norsk Eiendom, DiBK: TEK17 § 4-1 (FDV documentation)

English: Operating expenses (real-estate management costs, OpEx).

Common questions we come across

What are forvaltningskostnader?

Forvaltningskostnader are fixed operating costs for a building that are incurred regardless of use, including municipal charges, insurance and administration. They are one part of the FDVUS costs.

What is FDVUS?

FDVUS stands for Forvaltning, Drift, Vedlikehold, Utvikling and Service (management, operation, maintenance, development and service). Forvaltningskostnader are the F in FDVUS and cover the administrative and statutory costs of owning a property.

What do forvaltningskostnader include?

Forvaltningskostnader typically include municipal taxes and charges (water, wastewater, waste collection), property insurance, accounting and auditing services, and property administration.

Why do forvaltningskostnader matter to property investors?

Forvaltningskostnader are an important part of the total return calculation. For commercial property, they are deducted from the gross rental income to arrive at the net income used in a yield calculation.

How do forvaltningskostnader affect the return on a property?

Forvaltningskostnader vary with property type, location and age. For professional investors, net operating income (netto driftsresultat, NDR) after management costs is the key figure for assessing profitability.