The contractual method for increasing a tenant's CAM or rent charges year over year. Common escalation formulas include fixed percentage increases, CPI-based adjustments, and actual cost pass-throughs. The formula dictates how much more you pay each year.
Escalation formulas are lease provisions that define the rate, method, and timing of periodic charge increases. They may be fixed (e.g., 3% annual increase), indexed (tied to CPI or another published index), or variable (actual operating expense increases passed through pro rata). Some leases combine methods, applying a fixed escalation to base rent while using actual cost pass-throughs for CAM.
A lease specifies a 3% annual escalation on CAM, but the landlord applies the increase to the prior year's actual expenses rather than the base year amount. Over five years, compounding on actuals instead of the base produces charges thousands of dollars higher than the lease formula allows.
Map out your escalation formula year by year from lease commencement. Compare each year's billed amount to what the formula should produce. Compounding errors in escalation formulas grow every year they go uncorrected.
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Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
