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Lease clause

How to check an operating expense cap in an NNN lease

An operating expense cap can limit how quickly certain costs passed through to a tenant may grow. The difficult part is defining the expense pool, baseline, and compounding method correctly.

Practical tenant guideUpdated August 1, 2026

Start with the exact clause

Confirm which costs are controllable, which are outside the cap, whether the cap is cumulative or non-cumulative, and whether it compounds each year.

  • Cap percentage and first comparison year
  • Cumulative versus non-cumulative language
  • Compounded versus simple increase
  • Excluded taxes, insurance, utilities, or snow removal

Rebuild the allowed expense pool

Separate capped and uncapped categories for both years. Apply the formula only to comparable controllable expenses, then multiply any overage by the valid tenant share.

Watch for category and baseline changes

Compare category-level detail across years. A cost should not escape the cap because its label, account, or service provider changed.