What is a Stop Clause?
A Stop Clause in a lease stipulates an amount of operating expenses above which the tenant must bear the cost. Often, the base amount is set from the first full year of operation under the lease. For example, if the stop clause specifies that any utility costs over $2,500 annually must be paid by the tenant, expenses below that amount are covered by the landlord.
Real-life Example
Imagine you’re renting a commercial space and your lease includes a stop clause with a base year expense amount of $5,000. Here’s how it works:
- Your Base Year (Year 1): Operating expenses total $5,000.
- Year 2: Operating expenses increase to $6,500. With a stop clause, the tenant bears the cost of any increase over the initial $5,000, so for Year 2, the tenant will pay $1,500.
- Year 3: Expenses rise further to $7,000. The tenant will pay the $2,000 increase over the base amount of $5,000.
Key Benefits for Tenants
- Predictability: It offers some predictability to operating expenses, as only increases above a specified amount are the tenant’s responsibility.
- Shared Responsibility: Costs are shared reasonably between the tenant and landlord.
Key Considerations
- Always review the definitions and terms in your lease carefully. Ensure you understand what expenses contribute to the total operating costs.
- Consider negotiating the base year and the type of operating expenses that fall under the clause to guard against unexpected financial strain.
Frequently Asked Questions:
What if operating expenses decrease?
- Typically, if operating expenses fall below the stop amount, the landlord covers the costs up to the stop clause limit.
Are all increases in operating expenses included?
- No, some leases specify particular types of operating expenses or exclude certain costs. Review your lease contract for details.
Can a stop clause be negotiated?
- Yes, tenants can negotiate the terms of a stop clause, including the base year amount and included operating expenses.
By understanding stop clauses, tenants can better manage and prepare for potential fluctuations in their lease-related costs, making their rental agreement more predictable and balanced.
Related Terms: Base Year, Operating Expenses, Lease Agreement.
