A lease that requires the tenant to pay a share of expenses above a base-year amount contains:
Correct Answer
D) An expense stop
Why this is correct: An expense stop is a lease clause that caps the landlord's responsibility for operating expenses at a base-year amount. Expenses exceeding that base amount are passed through to the tenant. This structure directly matches the question's description of a tenant paying a share of expenses above a base-year amount. Why the other choices are wrong: A right of first refusal gives a tenant the opportunity to match an offer before a property is sold to a third party, unrelated to expense sharing. A percentage rent clause requires a retail tenant to pay additional rent based on a percentage of their sales volume, not operating expenses. A ground lease provision pertains to leasing land, typically for a long term, and does not define the specific expense-sharing mechanism described. Exam tip: For expense-related clauses, 'stop' means the landlord's responsibility stops at a defined level (base year, dollar amount), with excess passed to the tenant.
Why This Is the Correct Answer
Why this is correct: An expense stop is a lease clause that caps the landlord's responsibility for operating expenses at a base-year amount. Expenses exceeding that base amount are passed through to the tenant. This structure directly matches the question's description of a tenant paying a share of expenses above a base-year amount. Why the other choices are wrong: A right of first refusal gives a tenant the opportunity to match an offer before a property is sold to a third party, unrelated to expense sharing. A percentage rent clause requires a retail tenant to pay additional rent based on a percentage of their sales volume, not operating expenses. A ground lease provision pertains to leasing land, typically for a long term, and does not define the specific expense-sharing mechanism described. Exam tip: For expense-related clauses, 'stop' means the landlord's responsibility stops at a defined level (base year, dollar amount), with excess passed to the tenant.
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Discounted cash flow analysis differs from direct capitalization in that DCF:
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A 20-unit apartment building is fully occupied with rents at $1,500 per month per unit. Market data indicates a 6% vacancy and collection loss is typical. Management also anticipates 1.5% of effective gross income will be lost to credit loss from tenant non-payment and lease skips. What is the stabilized estimate of effective gross income for the property?