9.11 C. IndeXIng The Rent
Jurisdiction | New York |
C. Indexing the Rent
As an alternative to a complex operating expense clause, some landlords index their rents. This lets landlords keep their books private. It also saves tenants from a costly, time-consuming review of expenses that may produce legitimate disagreement.
But be wary. There are a variety of indices, with many subtle variations, in common use and their behavior can vary substantially. It’s surprisingly common for even large, sophisticated companies to be hit by higher rent escalations than they anticipated. In 1969, for instance, Avon Products signed a 27-year lease for nearly half of a 50-story tower in Manhattan. Avon’s rent increases were tied to the “porter’s wage”—hourly wage and fringe benefits hikes that certain employees receive under a union contract. Because the contract calculated fringe benefits on a weekly or yearly basis, Avon’s landlord, Sheldon Solow, had to translate these fringe benefits into an hourly rate.
For 10 years, Solow assumed, for the purpose of his calculations, that the union employees worked a 40-hour week. But in 1980, Solow notified Avon that he was revising his calculations to base them on the actual hours employees worked—31 hours a week. The effect on Avon was dramatic: its rent would jump $780,000 a year, more...
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- 9.0 I. Introduction
- 9.1 II. The Space
- 9.2 III. Operating Expenses— The Trickiest Clause
- 9.3 A. Umbrella Or Enabling Clause
- 9.4 B. Exclusions
- 9.5 C. Capital Improvements
- 9.6 D. Double-Dipping
- 9.7 E. Electricity
- 9.8 IV. Rent Increases
- 9.9 A. Base Year
- 9.10 B. Fair Share
- 9.11 C. IndeXIng The Rent
- 9.12 D. Overlapping Escalation Formulas
- 9.13 E. Disappearing Indices
- 9.14 V. Real Estate Taxes
- 9.15 VI. Alterations, Maintenance, And Repair
- 9.16 A. Alterations
- 9.17 B. Maintenance
- 9.18 C. Wear And Tear
- 9.19 VII. Casualties And Catastrophes
- 9.20 A. Casualties
- 9.21 B. Other Catastrophes—Off-Site Events
- 9.22 VIII. Escapes And Extensions
- 9.23 A. Subleasing
- 9.24 B. Assignment
- 9.25 C. Renewals
- 9.26 IX. Dispute Resolution
- 9.27 X. Negotiating The Workletter
- 9.28 A. The Build-Out Workletter
- 9.29 B. Interior Allowance And Fit-Up
- 9.30 XI. Conclusion
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