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                      Examination of Expenses
         Passed Through to Commercial Tenants

Which Expenses are Passed Through

Operating expenses of the shopping center that are typically
passed through to tenants include payment of: the real estate
taxes for the project, the premiums for the hazard and casualty
insurance that the landlords are often obligated to procure
pursuant to the terms of their leases, and certain costs for the
maintenance and operation of the project.

The real estate taxes that are typically passed through to and
paid by the tenants include all ad valorem real estate taxes
levied against the project and improvements that makeup the
project as well as non ad valorem taxes levied against the
project including fire district assessments, utility assessments,
and waste disposal or storm water run off assessments.  
Special assessments for pubic improvements which may be
assessed against the project are also typically passed through
to tenants.  Tenants will often want a provision included in the
lease that states that if such special assessments can be paid
over a period of time then landlord will elect to so spread out
the payments because then the tenant may not have to pay
their entire proportionate share of the assessments if the lease
ends before the final installment on the assessments is due.

Landlords often are required by the terms of their leases to
procure certain insurance for their commercial real estate
projects.  Such insurance usually includes casualty insurance
for the replacement of the buildings and improvements that
make up the project, in the event they suffer damage, and
liability insurance in the event someone is injured in the
common areas within the project.  The premiums for all such
insurance that the landlord is required to procure is often
passed through to the tenants.  The tenants generally pay
these premiums proportionately however if the activities or
business of a tenant cause the insurance premiums to increase
then generally that tenant pays the amount that the premiums
increase as a result of their activities within the project and the
remainder of the insurance premiums are proportionately paid
by all of the tenants.

And many, though not all, of landlord’s expenses of operating
and maintaining the project are also typically passed through to
the tenants.  The operating and maintenance costs that are
typically passed through to tenants include costs for the
maintenance of common areas (such as removing trash from
common parking areas, janitorial service for restrooms serving
the common areas, and maintenance of landscaping), repairs
to common areas (such as repairing the water management
system serving the project and re-stripping common parking
areas), and the cost of operating the project (such as the cost
for electrical service consumed for common parking lot lighting,
the costs associated with staff that operate the project, and the
costs associated with any consultants, accountants, or
attorneys retained to assist with the operation of the project).

Landlord’s expenses attributable to the overall project or for the
general benefit of all tenants are typically passed through.  
Landlord’s expenses attributable to a single tenant or which
benefit a single tenant are typically not passed through to all
tenant.

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