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

A live 90-minute premium CLE webinar with interactive Q&A

Tuesday, March 12, 2019

1:00pm-2:30pm EDT, 10:00am-11:30am PDT

or call 1-800-926-7926

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 on defining operating expenses, pass-throughs and exclusions, and other lease provisions impacting expenses such as gross-up and expense cap provisions.


The allocation of operating expenses in a commercial real estate lease is based on the 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 what to include 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 critical 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 options when negotiating these provisions to shield clients from unexpected costs and charges due to unclear provisions regarding tenant reimbursement to the landlord.

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 on defining operating expenses, pass-throughs, exclusions, gross-ups, expense caps, and other lease provisions impacting expenses.



  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


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 expenses
  • Essential differences in expense reimbursement provisions in retail and office leases


Brooks, Scott
Scott D. Brooks

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

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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