operating expense escalation

operating expense escalation

An increase in rent because a clause in the tenant's lease provides that as the building operating expenses increase above what they were in a base year,the tenant will pay its pro rata share of those increased expenses.Wise tenants negotiate an expense stop in order to place a ceiling on the escalations.Landlords are reluctant to agree because they generally have no control over real estate taxes or insurance premiums.As a result, tenants will typically put a cap on controllable expenses.Were it not for such restrictions,unscrupulous landlords could employ a large staff of overpaid relatives to perform work on the property and pass that expense on to all the tenants.Whether or not such practices would be attackable on the grounds of a lack of good faith would depend on the landlord's facially reasonable explanation for the practice and on the relative skill of each party's lawyers.

References in periodicals archive ?
Some of the critical issues discussed by the panelists included lease terms and base rent, rent commencement date, operating expense escalation and real estate taxes.
For this reason, Felsten advises including both some kind of operating expense escalation and Consumer Price Index escalation to protect the owner from the "ravages of inflation.
From an owner's point of view, Felsten said in an article for the Real Property Law Section Newsletter, the operating expense escalation does not operate effectively because of disputes, differing based years and defaults by tenants.
The group covered existing leases, renewals, below grade space, renewal commencement date, terms and base rent as well as tenant improvement, cash allowance, operating expense escalations and real estate taxes.
operating expense escalations, service billings, and a lack of adequate document and billing verification by the tenant, many commercial real estate tenants are being overcharged by many landlords.
Operating expense escalations are not a glamorous part of managing real estate.
This article deals with the issues relating to how landlords charge tenants for operating expense escalations and highlights some of the areas on which tenants should focus when negotiating a lease.
include the use clause (which sets forth the various uses for which the tenant is [and is not] permitted in the premises), the assignment and subletting provisions (which set forth criteria governing the tenant's right to transfer its interest in the lease and to permit others to share the premises), the alterations section (which regulates the tenant's ability to make physical changes in the premises), the operating expense escalations clause (which sets forth certain costs of operating and maintaining the building which the landlord may pass through to the tenant), and the indemnification provision (which protects each party from the actions of the other).
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