Question

Let’s suppose that you are a landlord negotiating a rental contract with tenant ABC, where you pass-through the variable operating expenses to the tenant, hence the tenant pays all variable operating expenses. What is the benefit for you as the landlord for such a lease?

Answer 1

   In the view of a land lord if the tenant is willing to pay all the variable operating cost then it will be a bonus for the landlord that he will be discharge from paying such costs and can maximize their profit. These kind of leasing we can say it as gross lease and this is mainly used by individuals who having limited resources and who wants to reduce their variable cost for the puropose of profit maximisation. By doing so sometimes the tenants are get benefited and they need not to pay regular rent and will helps to cut down the expenses.

   Most tenants know that in addition to the basic rent they are paying they often reimburse their landlords for a portion of the building’s operating expenses. In these cases most of the time the tenants are get benefited because they dont want to occupy all the places and so by taking the operating cost they can somehow make some reduction in paying. But here the occupying is an important factor.The tenant may needs to pay the portion of the increase in operating expenses over the year, the tenant would be obligated to pay a portion of the variable operating expenses which the new tenants needs to pay. This will leads to over payment and landlord get benefited from this particular payment. This is the benefit that the landlord get from the gross up in the lease.

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