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.