Finished Goods Less Food and Energy Index at a rate of 2% which served as the baseline for revenue and operating expense escalation
through the life of the debt and no penalties were assumed to be levied by the regulator.
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.
It's not only not a profit center, it doesn't even get me back (to the original rental amount with costs and inflation added)." 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.
In many leases, landlords now provide for annual percentage increases in rent in lieu of operating expense escalations
As a result of pro-landlord lease language, miscalculation of additional rent items; i.e., 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.
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.
Some leases provide caps on tax and operating expense escalations
. Such caps set a maximum for these expenses, which otherwise are passed through to tenants at whatever level they may attain in a given year.
Landlords are creative when it comes to finding ways of increasing a tenant's rent through additional charges that can include operating expense escalations
; real estate tax escalations;, electricity; free rent, landlord cash contribution, overtime HVAC, and freight usage and base building conditions.
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).