Total Reimbursable Amount for Operating Expenses Calculation
How to calculate the total reimbursable amount for operating expenses in Year 4?
A tenant signs a lease for an 18,000 SF office space. The lease includes an expense stop that stipulates that the tenant will reimburse the landlord for any operating expenses that exceed $10.00/SF. Operating expenses in Year 1 of the lease are $10 and are expected to increase $0.25 each year. What will the tenant’s total reimbursable amount be for operating expenses in Year 4?
Calculation of Total Reimbursable Amount for Operating Expenses in Year 4
In Year 4, the tenant's total reimbursable amount for operating expenses would be $0.75 per square foot (SF).
The tenant's total reimbursable amount for operating expenses in Year 4 can be calculated by determining the difference between the actual operating expenses and the expense stop.
In Year 1, the operating expenses are $10.00 per square foot (SF) and the expense stop is set at $10.00/SF. Since the operating expenses are equal to the expense stop, the tenant does not have to reimburse the landlord.
In Year 2, the operating expenses increase by $0.25, making them $10.25/SF. Since the operating expenses exceed the expense stop, the tenant will have to reimburse the landlord for the difference.
The difference is calculated by subtracting the expense stop from the actual operating expenses: $10.25/SF - $10.00/SF = $0.25/SF.
In Year 3, the operating expenses increase again by $0.25, making them $10.50/SF.
The difference between the actual operating expenses and the expense stop is: $10.50/SF - $10.00/SF = $0.50/SF.
In Year 4, the operating expenses increase once more by $0.25, making them $10.75/SF.
The difference between the actual operating expenses and the expense stop is: $10.75/SF - $10.00/SF = $0.75/SF.
Therefore, in Year 4, the tenant's total reimbursable amount for operating expenses would be $0.75 per square foot (SF).