Allocating Operating Expenses in Commercial Real Estate Leases | CLE Course

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Course Details

Course Information

smart_display Format
Live Online with Live Q&A
signal_cellular_alt Difficulty Level
Intermediate
work Practice Area
Real Property - Transactions

Date & Time

event Date
Thursday, August 7, 2025
schedule Time
1:00 PM E.T.
timer Program Length
90 minutes

Credit Information

This 90-minute webinar is eligible in most states for 1.5 CLE credits.

$297.00

CLE

ALL

This CLE course will discuss net and gross real estate lease structures (and those in between) and the allocation of operating expenses for different types of lease agreements. The program will cover negotiation from landlords' and tenants' perspectives on defining operating expenses, pass-throughs, and exclusions.

Faculty

Hannah Dowd McPhelin

Vice President, Real Estate and General Counsel

Harristown Enterprises, Inc

Ms. McPhelin is the Vice President of Real Estate and General Counsel for Harristown Enterprises Inc., a non-profit real estate development company with the mission of revitalizing downtown Harrisburg, Pennsylvania. She is a LEED® (Leadership in Energy and Environmental Design) Accredited Professional, a Counselor of Real Estate® and the Vice Chair of the Leasing Group of the American Bar Association Section of Real Property, Trust and Estate Law.

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Julia E. Tomec

Partner

Troutman Pepper Locke LLP

Ms. Tomec concentrates her practice in commercial real estate matters and other corporate business transactions, including the acquisition, sale, development and financing of industrial, office and retail properties. She represents both landlords and tenants in the negotiation of retail, office and industrial leases. Ms. Tomec also has experience representing lenders in credit tenant lease financings, as well as JV partners in connection with the acquisition, disposition, and programmatic developments of retail, office and industrial projects.

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Description

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

One key issue in allocating operating expenses is defining what to include and, more importantly, exclude in various categories of operating expenses. The scope or definition of operating expenses is a matter of agreement, so counsel must scrutinize the lease language and exclusions when negotiating operating expenses.

Tenants often seek to negotiate a cap on operating expenses, and a critical distinction is whether that cap is cumulative or noncumulative. Another crucial provision governing operating expenses is the gross-up provision that causes certain operating expenses that vary with the building's occupancy to be artificially increased and should be carefully drafted.

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 the negotiating perspectives of both landlords and tenants on defining operating expenses, pass-throughs, exclusions, gross-ups, expense caps, and other lease provisions impacting expenses.