An expense stop sets a fixed dollar amount, usually per square foot, up to which the landlord pays operating expenses. Once actual expenses exceed that "stop," the tenant reimburses its pro-rata share of the overage. It serves the same purpose as a base year — limiting the landlord’s exposure to rising costs — but defines the threshold as a negotiated fixed figure rather than a specific year’s actual expenses.
How an expense stop works
The stop is the dividing line between landlord and tenant responsibility:
- Landlord pays operating expenses up to the stop amount per square foot
- Tenant pays its pro-rata share of expenses above the stop
- The stop is a negotiated fixed number, set at lease signing
When expense stops are used
Expense stops appear most often in office leases. They give the tenant cost certainty up to the stop and give the landlord protection against expense growth, without tying the baseline to the variability of a particular base year.
A lease sets an expense stop of $9.00 per square foot. Actual operating expenses come in at $10.00 per square foot, so the tenant pays its pro-rata share of the $1.00 per square foot above the stop.