Base Stop Amounts in Expense Reports
In commercial real estate, a base stop amount refers to a provision in a lease agreement that specifies a certain amount of operating expenses that a landlord will cover for the tenant. This is typically associated with a gross lease structure (Gross, Full Service, etc.) and captures most, if not all, of the expenses associated with the property. The base stop amount is typically calculated as per square foot amount and represents a cap on the expenses that a landlord is responsible for paying.
For example, if a lease agreement specifies a base stop amount of $10 per square foot, and the total operating expenses for a given year are $12 per square foot, then the landlord would be responsible for paying the first $10 per square foot, and the tenant would be responsible for paying the remaining $2 per square foot.
The purpose of a base stop amount is to provide clarity and certainty for both the landlord and the tenant when it comes to operating expenses. It allows the landlord to budget for a fixed amount of expenses, and ensures that the tenant is aware of any increased expenses they may be responsible for during the term of the lease.
It's important to note that the specific terms of a base stop provision can vary widely depending on the lease agreement and the specific property in question. It's therefore important for both landlords and tenants to carefully review the lease agreement and understand the specific terms of the base stop provision before signing the lease. Landlords that don't have a firm grasp on their base stop expenses may end up overpaying and decreasing their cashflows and subsequent valuations.