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Web Articles
                      Examination of Expenses
         Passed Through to Commercial Tenants

Limiting Tenant's Pass Through Expenses

During the negotiation of a net commercial lease, a potential
tenant may request that their contribution to pass through
expenses or increases in their contribution to pass through
expenses be limited or capped.  While such a limitation may
actually have benefits for the landlord such as enticing the
tenant to lease space within the project and promoting fiscally
responsible operations of the project by both landlord and the
tenants, the landlord must consider the implications of a simple
cap on all pass through expenses paid by the tenant.

When a tenant requests that their pass through expenses be
limited or capped, the landlord should consider such request in
regards to controllable operational expenses for the project and
non-controllable operational expenses separately.  Many of
landlord’s expenses associated with the operation of a project
are, to some degree, controllable through the utilization of
experienced third parties to provide those necessary services,
negotiating with these third parties to obtain the best pricing
available, undertaking competitive bidding by third parties for
the opportunity to provide such services, and operating the
project in a fiscally responsible manner.  Non-controllable
operational expenses are generally considered to be taxes and
assessments charged against the project by a public body and
the premiums payable for insurance coverage for the project
that the landlord is obligated to procure.  Owner’s may agree to
a limitation on the controllable expenses but the owner must
carefully consider any limit on non-controllable expenses.  Non-
controllable pass through expenses should not be limited
because they can not be controlled by the owner, the amount of
such charges are otherwise established, and negotiations and
bidding will not lower such costs.

                                         Return to Examination of Pass Through Expenses
Law Office of
Craig W. Little, P.A.