Glossary / Lease terms and deal stages
Also known as: Stop, expense cap (landlord side)
An expense stop is a fixed dollar amount of operating expenses, usually stated per square foot, that the landlord pays under a lease. The tenant pays its pro rata share of any expenses above that amount, so the stop sets where tenant pass-through charges begin.
The SIOR lease glossary defines an expense stop as "an agreed dollar amount of taxes and operating expense (expressed for the building as a whole or on a per square foot basis) over which the tenant will pay its prorated share of increases." A.CRE describes it as the fixed amount "above which the tenant is responsible to pay" in a full service gross lease.
The difference from a Base year is how the figure is set. Colliers explains that a base year uses actual expenses for a chosen year, while an expense stop is a predetermined amount per square foot written into the lease.
The expense stop decides who carries cost growth, which affects the tenant's total occupancy cost and can change how the Base rent is negotiated. The charges above the stop are additional rent. Whether additional rent is in your commission base depends on your commission agreement; a Grubb & Ellis commission agreement, for example, excluded adjustments for operating expense increases from its commission calculation.
If you are paid on base rent only, a lower or higher stop does not change your fee directly, but it can change the rent the tenant is willing to accept.
Know whether your deal uses a stop or a base year, and whether either feeds into your commission, before you model the fee.
For example, on a hypothetical lease of 6,000 square feet with a $12 per square foot expense stop, if actual operating expenses come in at $13 per square foot, the tenant owes $1 x 6,000, or $6,000, for that year.
