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Web Articles
                     Examination of Expenses
        Passed Through to Commercial Tenants

Care in Assessing Tenants for Pass Through Expenses

Landlords must be careful when assessing tenants for pass
through expenses under net leases.  Obviously including
expenses in the tenant’s assessments that they are not
obligated to pay pursuant to the terms of their lease may
generate discourse, ill-will, and distrust on the part of the
tenants.  But failing to assess pass through expenses to
tenants may result in the landlord relinquishing their right to
collect those pass through expenses, even if the terms of the
leases permit such expenses to be collected from the tenants.  

Courts in Florida have held that a landlord who fails to assess
tenants for pass through expenses and does not correct such
failure for an extended period of time, eventually waives their
right to correct the error and later collect such past expenses.  
A case brought before a Florida Court involved tenant pass
through expenses that were improperly calculated.  The
landlord failed to include a certain area in the square footage
calculation attributable to a tenant, thereby reducing the tenant’
s proportionate share of pass through expenses.  After 10
years the landlord attempted to collect the difference between
the pass through expenses paid by this tenant over this period
of time and the recalculated pass through expenses that the
landlord claims should have been charged for this 10 year
period based upon the increased square footage attributable to
the tenant.  The Court found that whether the miscalculation
was intentional or a mistake, sufficient time had passed that the
landlord had waived their right to collect these back pass
through expenses.

Therefore landlords can waiver their right to collect pass
through expenses from tenants if they miscalculate the tenant’s
contribution to the payment of such expenses.  But this case
would also seem to support the argument that if a landlord fails
to assess tenants for a certain expense, even if such expense
should be passed through to the tenants pursuant to the terms
of their leases, then, at some point, the landlord waives their
right to correct the failure and collect those past expenses.  
Further, this case could even be offered as support for the
argument that a waiver by a landlord to collect past pass
through expenses affects their right to collect those expenses in
the future, though this question has never been considered by
Florida Courts.  Therefore landlords must be careful when
assessing tenants pass through expenses.

Obviously an error that is timely discovered and corrected will
not waive landlord’s right to collect past pass through
expenses.  But if the error is not discovered and corrected in a
timely manner then at some point landlord’s right to collect such
expenses from the tenants will be waived and the landlord will
be forced to absorb these uncollected expenses which could be
costly since the failure to properly collect the pass through
expenses will have continued for an extended period of time
before the landlord’s right was waived and such costs will have
presumably accrued throughout this entire period of time.  The
difficulty in applying this legal precept to the practical
marketplace is that Florida Courts have not defined what
amount of time must pass before the landlord has waived their
right to collect the pass through expenses from the tenants.

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