Unnamed Staff (A.CRE): Expense Stop
Core Ideas
1) Rationale: Under a full-service gross lease, the property owner must cover all expenses from the rent payments received. To protect themselves against unanticipated cost increases, owners often insert an expense stop (limit amount) into the lease.
2) Implementation: The expense stop amount is set to the actual operating expenses for the first year of the lease or based on forecasted figures. If the actual operating expenses exceed the expense stop amount, then the tenant must reimburse the owner for the overage.
3) Efficiency: An expense stop incentivizes tenants to use utilities (electricity, water, gas) efficiently.