For eight years the operating expense clause did one job: move rising insurance premiums from landlord to tenant. Premiums are now falling, and the clause does not run in reverse.
Between 2019 and 2024, commercial property insurance premiums grew by more than 15% a year, and by nearly 30% in 2023 alone. Insurance roughly doubled as a share of both rental income and operating expenses.[1] In apartment buildings it went from about 4% of operating expenses to about 8%.[2] Every one of those dollars had to land on somebody, and the operating expense article decided where.
The pass-through worked, and then it stopped working.
Early in the run-up, owners recovered roughly half of the increase through rent, with the strongest recovery in supply-constrained markets. By 2024 that relationship had nearly disappeared: rents no longer moved with insurance costs, and the increase came straight out of net operating income, with estimated declines above 25% in the highest-risk areas.[1]
That is the part worth sitting with. The pass-through never actually depended on the lease language alone—it depended on whether the market would bear the rent. When it would not, the clause stopped being a risk transfer and became a negotiation about renewal.
Then the market turned.
In the first quarter of 2026, commercial premiums fell across all account sizes for the first time since the third quarter of 2017, and commercial property posted the largest decrease of any line at 5.5%.[3] On the ground the numbers are larger: property rates down roughly 7% year over year for non-catastrophe assets and around 16% for catastrophe-exposed ones, multifamily renewals landing 5% to 15% below expiring, and named-storm deductibles returning to 5% of insured value or less after years of climbing.[4]
So the obvious question for a tenant with a triple-net lease and a reconciliation statement due: where did my share of that go?
The answer is usually “nowhere,” and the reason is structural.
Start with the cap. Expense caps are conventionally limited to controllable expenses—management fees, janitorial, landscaping, general repairs—while taxes, utilities, and insurance are carved out as uncontrollable.[5] That carve-out is symmetric and honest on its face: it neither raises nor lowers what the tenant pays when premiums move. It simply means insurance was never inside the protective structure to begin with. Tenants who thought a 4% cap protected them from the insurance market were reading a clause that expressly said it did not.
The asymmetry is in three other places.
1. The base year is a floor, not a benchmark. In a base-year or expense-stop lease, the tenant pays only the increase over base-year expenses. Set a base year in 2023, 2024, or 2025 and you anchored to the peak of the hardest property insurance market in decades. Premiums can now fall a long way before the tenant sees a dollar, because falling below the stop produces no credit—it produces zero. And many leases go further, adding language that operating expenses for any year shall in no event be deemed less than base-year operating expenses. That sentence converts a floor into a ratchet: increases travel, decreases do not.
2. Gross-up applies to the wrong line item. A gross-up clause recalculates expenses as if the building were 95% or 100% occupied, so that a half-empty building does not under-bill its variable costs.[6] The logic only works for expenses that actually vary with occupancy—utilities, janitorial, trash. Property insurance is substantially fixed. A lease that grosses up “Operating Expenses” as an undifferentiated whole, rather than grossing up only the variable components, inflates a line item that is currently falling. The tenant is billed a hypothetical premium for a building that does not exist.
3. Cumulative caps bank the good years. A non-cumulative cap resets annually: 4% is 4%, every year, full stop. A cumulative cap carries unused headroom forward, so a landlord whose controllable costs rise only 1% in a soft year retains 3% of unused allowance to deploy later.[7] Nothing about that is improper. It is simply a provision that quietly converts a favorable year into future billing capacity, and it is a single word in a defined term.
There is a fourth, quieter one. Deductibles are falling, but many operating expense definitions permit the landlord to include deductibles, self-insured retentions, and captive-insurance premiums “at commercially reasonable rates.” Where a landlord self-insures, the tenant is paying an internal transfer price with no market invoice behind it—which is exactly the sort of provision that should have a definition and usually has an adjective.
The tenant’s only lever has a timer on it.
The audit right is the mechanism for testing any of this, and it is the provision most likely to have been traded away in the last hour of a negotiation. Typical drafting requires the tenant to give notice within 90 days to 18 months of the reconciliation statement, restricts the audit to business hours, and shifts audit costs to the landlord only if the overcharge exceeds a threshold—commonly 5%.[8]
That is a contractual limitations period, agreed to voluntarily, and it is running right now. The reconciliation covering the first full year of soft insurance pricing is the one that needs checking, and the window to check it closes on a schedule that varies lease by lease across a portfolio.
Why this is a portfolio question, not a document question
An owner or occupier with sixty leases does not have one operating expense clause. They have sixty, negotiated across a market that repriced insurance in one direction for eight years and is now repricing it in the other. Some have base years at the peak. Some gross up everything. Some have cumulative caps. Some have audit windows that expire in November.
The exposure is not in any single lease; it is in the distribution. This is the same structural point as the power clause in a data center lease, where a change-in-law or force majeure definition drafted in an afternoon decides who absorbs a utility cost increase, and the same one as the remedies clause in a purchase agreement. Silence is never neutral. It selects a default, and the default is rarely the one you would have chosen.
Reading sixty operating expense clauses at once#
Answering which of our leases have a base year set during the insurance spike, and which audit windows close this quarter? by opening sixty documents and their amendments is exactly the work that used to consume associate weeks—and it produces an answer that is stale as soon as the next renewal is signed.
This is the problem Acrebase is built for. Acrebase is AI-powered contract intelligence for commercial real estate: it parses leases, purchase agreements, and amendments into structured data, flags unusual or missing provisions, and lets you query an entire contract library in plain language. Ask which leases carve insurance out of the expense cap, which caps are cumulative, which gross up all operating expenses rather than only the variable ones, which include a floor at base-year expenses, and which audit windows expire in the next 90 days—and get answers with every extraction traced back to the exact language in the source document, because a refund you cannot cite is a refund you will not collect.
For teams that would rather catch it during drafting than during reconciliation, the same review sits inside Microsoft Word. The Acrebase Word add-in puts chat, proofreading, a clause library, and redlining in the task pane next to the document, so “in no event less than Base Year Operating Expenses” gets flagged while it is still a redline. It is the working version of the argument we made about AI in CRE due diligence: the software handles extraction and comparison across the portfolio, the attorney keeps the judgment. And because expense negotiations are slow and low-status relative to rent, it is worth remembering what long negotiations do to deals—the operating expense article is usually settled by exhaustion, which is why it is where the money hides.
The practical takeaway: if you are a tenant, find your base year, find your gross-up language, and find your audit deadline—in that order, this quarter. If you are a landlord, know which of your leases will produce a credit request in the next reconciliation cycle before the request arrives. The insurance market moved. Most operating expense clauses were drafted as though it only moves one way.
Footnotes
[1] Minjoo Kim, Prateek Mahajan & Zirui Wang, “Who bears rising commercial property insurance costs?” Brookings (July 7, 2026). https://www.brookings.edu/articles/who-bears-rising-commercial-property-insurance-costs/
[2] Moody’s Analytics CRE, “For Some CRE Owners, Insurance Now Gobbles Up Double the Revenue.” https://www.moodyscre.com/insights/market-insights/cre-insurance-gobbles-revenue/
[3] The Council of Insurance Agents & Brokers, Commercial Property/Casualty Market Index, Q1 2026 (first average premium decrease across all account sizes since Q3 2017; commercial property down 5.5%). https://www.ciab.com/resources/q1-2026-pc-market-survey/
[4] “Inside CRE’s Softening Insurance Market,” Commercial Property Executive (Aug. 6, 2026). https://www.commercialsearch.com/news/inside-cres-softening-insurance-market/
[5] “Negotiating Operating Expenses in Commercial Leases,” Equinox Law Group (controllable vs. uncontrollable expenses and the scope of caps). https://equinoxbusinesslaw.com/blog/negotiating-operating-expenses-in-commercial-leases/
[6] “‘Gross-Up’ Language in Your Commercial Real Estate Lease,” Stross Law Firm, P.A. (gross-up to 90–100% occupancy; application to variable expenses). https://strosslaw.com/gross-up-language-in-your-commercial-real-estate-lease/
[7] “CAM Caps in Commercial Leases: Cumulative vs. Non-Cumulative.” https://brentlevison.com/cam-caps-commercial-lease-cumulative-vs-non-cumulative/
[8] “Audit Rights in Commercial Leases: Why Tenants Must Protect Themselves” (notice windows and 5% cost-shifting thresholds). https://www.suburbanrealestate.com/post/audit-rights-in-commercial-leases
Acrebase is AI-powered contract intelligence for commercial real estate — clause extraction, risk flagging, and portfolio-wide search, plus an AI contract review add-in for Microsoft Word. Learn more at acrebase.com, install the Word add-in from Microsoft AppSource, or get in touch about pricing.