Understanding Expense Stops in Property Leasing
What is an Expense Stop?
An Expense Stop is a crucial component in many commercial lease agreements. This clause sets a limit on the amount of operating expenses that a landlord agrees to cover. Essentially, it controls the total expenses that the landlord will pay without passing additional costs onto the tenant.
Example: Breaking Down an Expense Stop in Practice
Imagine a commercial lease where the Expense Stop is set at $10,000 per year. If the building’s operating expenses, which may include utilities, janitorial services, and insurance, exceed this amount, the tenant is responsible for the leftover sum. For instance, if the operating expenses total $12,000 in one year, the tenant would need to pay the additional $2,000.
Benefits of Expense Stops
- Clarity and Predictability: Tenants can anticipate their maximum exposure to variable costs.
- Cost Management: Landlords are incentivized to manage and control operating expenses effectively.
Types of Expenses Covered
Expense Stops typically cover a range of operational costs such as:
- Property Taxes
- Building Maintenance
- Insurance premiums
- Utilities
- Janitorial services
Negotiating an Expense Stop
When signing a lease, it’s vital for both parties to carefully negotiate the level of the Expense Stop. Elements to consider include:
- Base Year Calculations: Some clauses use a
Related Terms: Base Year, Operating Expenses, Lease Clauses.
