This office lease form is a clause that describes all costs, expenses and disbursements incurred and paid by the landlord to its agents or contractors. This form also lists the operating expenses that are included and excluded from this clause.
Michigan Adjustments of Rent Complex Operating Expense Escalations Clause
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US-OL19036
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How to fill out Adjustments Of Rent Complex Operating Expense Escalations Clause?
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FAQ
A base year refers to a type of expense stop in which the landlord pays for all operating expenses in the first year. After that first year, Phelps explained, the tenant is responsible for all operating expenses over and above the first year's established base year expenses.
Base Year Stop is another reimbursement method where the landlord pays all expenses of the property in the first year of the lease term. This amount is also called the expense stop. The tenant starts paying for the amount exceeding the expense stop in the second year.
Suppose that a tenant signs a lease in an office building for 5,000 square feet of space. The base rental amount is $10 per square foot. In year one of the lease, the landlord pays for all of the building operating expenses and the total comes out to $10,000. This is the base year expense stop amount.
An expense stop is the maximum amount a landlord will spend on operating expenses. Any amount above the expensive stop becomes the tenant's responsibility.
The landlord's contribution towards outgoings will be based on an actual year of outgoings at the building - known as the 'Base Year'. It will pay that same amount towards outgoings each year of the lease. So, if your lease shows a 'Base Year', it's important to understand how it can affect your bottom line.
A base year is the first of a series of years in an economic or financial index. In this context, it is typically set to an arbitrary level of 100. New, up-to-date base years are periodically introduced to keep data current in a particular index. Base years are also used to measure the growth of a company.
For example, if the base year operating expenses are $5.00 per square foot and during the subsequent year, building operating expenses increase by 3 percent, the result is a $0.15 per square foot increase (5.00 x 103%=5.15). For a 3,500 square-foot lease, this would amount to an escalation payment of $525.00.
Essentially, the Base Year Amount is synonymous with the Expense Stop amount, which is the actual amount of money that comprises the property taxes, insurance and operating expenses. Just like the Base Year amount, the tenant is responsible to pay any increase in those expenses above the Expense Stop amount.