CRE glossary
Pass-through expenses
Pass-through expenses are operating costs that the landlord recovers from tenants in addition to base rent. The most common categories are real estate taxes, building insurance, CAM, and general operating expenses. In NNN almost everything passes through; in modified-gross only some costs do; in full-service the landlord absorbs most pass-throughs in base rent.
Pass-throughs are billed monthly as estimates based on the prior year's actuals, then reconciled annually. If actuals exceed estimates, the tenant owes a true-up; if below, the tenant gets a credit.
Four main categories: real estate taxes (easy to verify via public bill), insurance (verify via certificate), CAM (disputed because internal landlord categories), operating expenses (similar dispute potential).
Tenants should fight for: caps on controllable costs (3–5% per year), explicit exclusions (capital expenditures, leasing commissions, depreciation), audit rights, and base year (for full-service leases).
Pass-through cost
Total = Pro-rata share × (Taxes + Insurance + CAM + OpEx)
Example
- Real estate taxes
- $5–$8 / SF
- Building insurance
- $0.50–$1.50 / SF
- CAM (Class A office)
- $5–$15 / SF
- Other OpEx
- $3–$10 / SF
- Total typical
- $13–$35 / SF on top of base
Broker perspective
Pass-throughs are where lease economics live. Always model effective rent (base + pass-throughs) over the full term. A $40/SF NNN base with $20/SF pass-throughs is more expensive than a $55/SF full-service lease. Compare apples-to-apples.
Frequently asked
People also ask
NNN vs full-service pass-throughs?
NNN: tenant pays everything. Full-service: landlord absorbs most in base rent, charging only escalations above base year.
How calculated?
Pro-rata share = tenant's RSF / total building RSF. Multiply by total annual costs in each category.
Can pass-throughs be capped?
Yes, on controllable costs (CAM, OpEx). Taxes and insurance usually can't be capped because they're external.
What to exclude?
Capital expenditures, depreciation, leasing commissions, principal/interest on mortgages, costs benefiting specific tenants.
Related terms
Triple net lease (NNN)
A lease where the tenant pays base rent plus their pro-rata share of property taxes, insurance, and CAM.
Common area maintenance (CAM)
Tenant's share of the cost to operate and maintain shared building areas, lobbies, parking, landscaping, HVAC, security.
Operating expenses (OpEx)
All costs to run the building, taxes, insurance, utilities, janitorial, management, that get passed through to tenants in NNN and modified gross structures.
Expense stop
The base year operating-expense level in modified gross leases, tenant pays only increases over this floor.
Audit rights
Tenant's right to inspect the landlord's books to verify CAM, operating-expense, and tax pass-through charges.
See pass-through expenses extracted from a real lease.
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