BASE STOP LEASE
What is a Base Stop Lease?
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Base stop leases limit owner responsibility to operating expenses
Any increase in expenses is paid or reimbursed by the tenant
By the end of this episode you’ll learn:
What is a base stop lease?
How is this lease different from a full service lease?
How is the “stop” defined?
How does the “stop” limit an owner’s expense liability?
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There are many types of commercial real estate leases. One of the more popular is the base stop lease. This lease type establishes a ceiling or maximum on the amount of responsibility the owner has for operating expenses. The term “stop” in the lease type name comes from this concept of the ceiling or limit on owner expense responsibility.
By setting the “stop”, the owner can pass any increases in expenses over the “stop” to the tenant.
For example, an owner can establish a base stop of $10.00 per square foot. The owner is responsible and will pay for all expenses up to $10.00 PSF. If actual expenses are $11.00 PSF, the tenant will pay for the excess, the $1.00 PSF. So, the limit or “stop” for the owner is the $10.00 PSF.
Normally, the base stop amount will relate to the total operating expenses for the property for a 12-month period. However, as with most things in commercial real estate, there are different applications and interpretations of a traditional definition. Take note of the actual lease, where the time period, amount of the limit and scope of the limit are defined more fully.
On the spectrum of owner and tenant expense responsibility, this lease type leans towards the left, with more responsibility borne by the owner.