Understanding operating cost escalations from a tenant′s perspective

Discusses the often misunderstood area of building operating cost escalations – that is, the share of building operating expenses charged to an office tenant – with the goal of offering a greater practical understanding of key concepts and calculation methods. Defines and explains the base year, expense stop, stipulated base amount, and office triple net methods of calculation, including the gross‐up concept for base year leases. Using sample numbers, compares the tenant′s cost obligation under each method. Offers practical pointers to enhance the facility manager′s ability to evaluate and deal with escalations. Advocates inclusion of detailed audit rights in the lease document to permit the tenant to audit annual escalations and provides sample audit right language.