The Operating Expense Gross-Up

The troubled state of the commercial leasing market has compelled most landlords to navigate every available avenue in order to induce cash flow from their properties. Negative economic conditions, and measures taken by landlords to offset them, sometimes create opportunities for a landlord to enhance its bottom line. Property tax relief arising as a result of increased vacancy may enable a landlord to modify its approach to recovery of operating expenses from tenants. Because of the expanding availability of such relief and the increasing frequency in which it is pursued, real estate taxes are most appropriately characterized as a variable expense when passed through to tenants pursuant to a “gross-up” clause.