Check Your Understanding: Operating Expense Escalations, Real Estate Tax Escalations and Percentage Rent Increases

A tenant advocate should aim to keep the definition of operating expenses within the lease as broad as possible.

Generally speaking, landlords are in the business of leasing out their space for profit and tenants are in the business of leasing out space from landlords to conduct their business operations in order to make profit.

As opposed to a landlord having the option at any time during the term of a tenant’s lease to make a decision on the payment method, it is preferable for a tenant to definitively know prior to lease execution whether it will be paying its tax escalation payments in a single lump sum, or alternatively, in monthly, quarterly or semiannual installments.

When negotiating a percentage rent provision within a retail lease, a landlord should include language reflecting that the tenant is obligated to continuously operate its business in the premises throughout the term of the lease.

In regards to operating expenses, tenants should agree to pay organizational expenses associated with the creation and operation of the entity that constitutes the landlord.