Allocating Operating Expenses in Commercial Real Estate Leases: Negotiating Strategies for Landlords and Tenants

Structuring Pass-Throughs, Exclusions, Gross-Up, Expense Cap and Other Operating Expense Provisions in Net and Gross Leases

Recording of a 90-minute CLE webinar with Q&A


Conducted on Tuesday, November 14, 2017

Recorded event now available

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Program Materials

This CLE webinar will discuss net and gross real estate lease structures and the allocation of operating expenses for each lease structure. The program will discuss negotiation from the perspectives of both landlords and tenants with respect to defining operating expenses, pass-throughs and exclusions, and other lease provisions impacting expenses such as gross-up and expense cap provisions.

Description

The allocation of operating expenses in a commercial real estate lease is based on the type of lease structure involved, whether a net lease, triple net lease, gross or modified gross lease. Operating costs broadly include utilities, taxes, insurance, lease premise maintenance, common area maintenance and management expenses.

One key issue in allocating operating expenses is defining exactly what is included in various categories of operating expenses. The scope or definition of operating expenses is a matter of contract, so counsel must scrutinize the lease language and exclusions when negotiating operating expenses.

Tenants often seek to negotiate a cap on operating expenses and the key distinction is whether that cap is cumulative or non-cumulative. Another critical provision governing operating expenses is the gross-up provision that makes operating expenses vary with the occupancy of the building. Properly drafted, gross-ups will benefit both the landlord and tenant.

Counsel must understand available options when negotiating these provisions to ensure that the client is not surprised by additional costs and charges for which tenant reimbursement to the landlord is not specified.

Listen as our authoritative panel of real estate practitioners walks you through the different lease structures and the more common allocations of operating expenses within each structure. The panel will look at negotiating perspectives of both landlords and tenants with respect to clearly defining operating expenses, pass-throughs, exclusions, gross-ups, expense caps and other lease provisions impacting expenses.

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Outline

  1. Brief overview of different types of lease structures
  2. Standard operating expense inclusions and exclusions
  3. Gross-up provisions
  4. Expense cap provisions
  5. Audit rights of landlord operating costs

Benefits

The panel will review these and other key issues:

  • Structuring gross-up provisions to protect both landlord and tenant
  • Considerations for drafting a cap on operating costs
  • Reasonable audit rights for operating costs
  • Important differences in expense reimbursement provisions in retail and office leases

Faculty

Brooks, Scott
Scott D. Brooks

Partner
Cox Castle & Nicholson

Mr. Brooks has vast experience in all aspects of developer/owner representation, including leasing, acquisitions and...  |  Read More

Sykes, Robert
Robert J. Sykes

Partner
Cox Castle & Nicholson

Mr. Sykes handles real estate transactions of all sizes on a national basis, representing retail, industrial, office,...  |  Read More

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48 hours after event

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