Lease documents frequently contain provisions for rental adjustments.Even if you have an understanding that the rental is quoted at a certain per square foot amount, without clarity on the rental in each year, you may be dealing with imprecise language.
These increases usually take the form of some multiplier such as an annual increase in the Consumer Price Index or other index specific to the area the building is located in.In must be determined first exactly what is expected to be multiplied and therefore increased.Remember that in full service leases, the rent is a combination of the Capital Portion and the Operating Expense Portion.Many leases have separate clauses for the handling of increases in operating expenses which we addressed earlier in this website in the Operating Expense section.If it is reasonable to assume the tenant must be esponsible for the increases in operating expenses, then it would be a exponential mistake to accept that simultaneously the base rent (consisting of the capital portion and expense potion) be as well multiplied by some multiplier.It would be precise that if there is an agreement to adjustment in the rent, that it be clearly understood what is increasing: the capital portion, the operating expenses or both. In heavily landlord oriented markets, a take it or leave it situation may result where the tenant has little choice.But even in this environment, to avoid conflict and misunderstanding in the future, be sure each category is clearly understood as to how each is being treated for increase.Limiting any rental increase in these categories is based on the market conditions no differently than other terms in the lease.While it may be desired to have zero rent adjustments over five years, it may be reasonable to understand that operating expenses, like the cost of living, do increase. It may be unreasonable, considering the market, to also increase the capital portion.Your situation can only be determined by your market and the leverage you have at each building.At one building you may have success in placing various limitations of increases while at others you will be unsuccessful.In any event, simply account for what you have negotiated and enter any good faith expectations or defined increases in the lease analysis software to put each building on an apples-to-apples basis.
Nothing contained herein is to be considered legal advice. Always seek legal advice when evaluating any legal document
