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Web Articles
      Calculating Tenant's Proportionate Share of
Operating Expenses Under a Net Commercial Lease

Under a “gross” commercial lease, when the tenant and landlord
negotiate the lease terms, they agree on the amount of rent that
the tenant will pay throughout the term of the lease.  While this
rental amount may increase periodically, such increases are
predetermined and the amount the tenant pays will vary based
upon these predetermined terms only and not upon fluctuations
in the operational expenses for the real estate project.

Under a “net” commercial lease, the tenant pays to landlord
both a rental amount for the use and occupancy of the leased
space and a portion of the operational expenses for the real
estate project.  Therefore the amount the tenant pays will vary
based upon fluctuations in these operational expenses for the
project.

The calculation of the proportionate share of operational
expenses a tenant pays under a net lease is an endeavor that
at first blush should be fairly simple and straightforward but can
quickly become rather complex.

A leased building occupied by a single tenant is obviously the
easiest scenario for the calculation of a tenant’s contribution to
the operational expenses of a project because 100% of the
operational expenses will be paid by the single tenant.  But in
the scenario where more than one tenant occupies a real estate
project, the portion of the operational expenses that any one
tenant will pay must be calculated.  This calculation is usually
based upon
the square footage of the project that is attributable
to the tenant.  And once the square footage that is attributable
to the tenant is determined then
the proportion that this square
footage represents to the total square footage within the project
must be calculated.  

While there are numerous ways that square footage and
proportionate shares can be calculated, for simplicity in the
operation of a project and to avoid preferential treatment of
individual tenants at the expense of other tenants, the same
scheme for determining square footage attributable to tenants
and calculating the tenant’s proportionate share should be
generally uniformly applied throughout the project to each non-
anchor tenant.

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