ESCALATOR CLAUSES IN COMMERCIAL LEASES
Persons wishing to execute long term commercial leases are often apprehensive that the cost of maintaining the property may eventually exceed the monthly rent. For example where a fixed rent amount becomes insufficient because of a sudden rise in property taxes or insurance. For this reason land lords often employ “escalator clauses” which incrementally increase rent to cover additional costs. This can be done either by using a formula, such as a fixed annual increase in the rent at an agreed upon percentage or by more ambiguous means such as a term which indicates the rent will increase as required by costs incurred. A third method is to use the consumer price index or another inflationary index. It is very wise to include such a term, however any of the three methods come with potential problems. There is often abuse in Common Area Maintenance charges. Leases often fail to define what an “operating expense” actually means. Most leases do not provide for any audit rights for a tenant wishing to challenge a poorly explained increase in operating expense. A fixed percentage can eliminate many of these problems but the land lord will be very dissatisfied with the rental situation if the cost of maintaining the property actually begins to exceed the rent. Proper drafting and foresight will eliminate such problems, however legal assistance should be sought out. Our skilled attorneys are ready to assist you as a prospective tenant or land lord in devising language that suits your particular needs. Call David at (920)437-8191.