What does a passthrough clause in a lease help cover?

A passthrough clause in a lease serves to address the allocation of certain expenses between the landlord and the tenant. Specifically, it allows the landlord to pass on specific costs, typically related to annual increases in real estate taxes and operating expenses, directly to the tenant. This clause is crucial in commercial leases as it helps protect the landlord from fluctuations in operating costs that could significantly impact their profitability.

For instance, if property taxes increase or if utility rates rise, the passthrough clause enables the landlord to recoup those additional expenses by passing them onto the tenant, ensuring that the total cost of property management remains sustainable. This arrangement aligns the interests of both parties, as tenants are aware of potential increases in their costs, and landlords can manage their financial responsibilities effectively without absorbing all variable increases.

Other options, such as initial lease signing costs or damage repairs, do not typically fall under passthrough provisions because they are usually categorized differently in lease agreements. Utilities, while sometimes subject to passthroughs, are generally included in operational expenses directly rather than treated as a standalone item dependent on a passthrough clause. Thus, the passthrough clause primarily focuses on ongoing and variable costs related to the property, making it essential for the financial management