Legal Definitions - expense stop

Expense Stop

An expense stop is a specific clause found in a commercial lease agreement that sets a maximum limit on the amount of certain operating expenses a landlord will pay. Once these specified expenses exceed this predetermined maximum (the "stop"), the tenant becomes responsible for covering any additional costs.

This provision is commonly used in commercial real estate, especially in multi-tenant buildings, to protect landlords from unlimited increases in operating costs like property taxes, insurance, or common area maintenance (CAM) fees. It also makes tenants aware of their potential financial responsibility for these fluctuating expenses beyond a certain threshold.

• Example 1: Office Building Lease for Property Taxes

  Imagine a small marketing firm leasing office space in a downtown building. Their lease includes an expense stop for property taxes set at $15,000 per year. This means the landlord is responsible for paying up to $15,000 in property taxes for the building. If, in a subsequent year, the property taxes increase to $18,000 due to a reassessment, the landlord will pay the initial $15,000, and the marketing firm (the tenant) will be responsible for paying the additional $3,000 ($18,000 - $15,000) as their share of the increase.

• Example 2: Retail Store Lease for Common Area Maintenance (CAM)

  Consider a clothing boutique leasing space in a bustling shopping center. Their lease specifies an expense stop for Common Area Maintenance (CAM) charges, such as landscaping, parking lot upkeep, and security, at $4.00 per square foot. The landlord covers CAM costs up to this amount. If, due to rising utility costs or increased security needs, the actual CAM expenses for the year reach $4.75 per square foot, the boutique would then be responsible for paying the difference of $0.75 per square foot, in addition to their base rent and their share of the initial $4.00 per square foot.

• Example 3: Industrial Warehouse Lease for Building Insurance

  A logistics company leases a large warehouse for its operations. Their lease agreement includes an expense stop for the building's insurance premiums, capped at $8,000 annually. The landlord is obligated to pay the first $8,000 of the insurance cost. If, in a particular year, the insurance company raises the premium to $9,500 due to market changes or increased risk assessments, the logistics company (the tenant) would then be responsible for paying the $1,500 difference ($9,500 - $8,000) above the expense stop amount.