Definition of "Stop clause"

Jodi Bakst, Broker real estate agent

Written by

Jodi Bakst, Brokerelite badge icon

Real Estate Experts

Leasing commercial or industrial real estate can be a perplexing process. As a tenant (and as a landlord,) you must consider several aspects before actually signing the deal. Even top local real estate agents recommend you to ask fundamental questions from your potential landlord

For instance, it would be best if you discussed details regarding the lease agreement and various clauses and provisions embedded to avoid future unpleasant surprises. Revealing and learning about crucial information on these agreements form the basis of landlord-tenant rights.

What does a stop clause in a lease agreement refer to?

A stop clause is integral to real estate deals, especially apartment leases. Under such circumstances, a stop clause, often known as an eviction or escalation clause, defines a provision in a lease agreement. More precisely, it indicates the maximum amount of operating expenditures that the landlord of the rental property is supposed to incur in a given year. The lessee must pay any amount incurred in excess of this amount.

Landlords can change provisions to fend off an unstable market.

Landlords are skilled at including stop clauses and escalation provisions into lease agreements. Imagine that rents in a particular area are rapidly rising. In that circumstance, landlords may reconsider signing a long-term lease instead of a short-term one. They know that this might result in a lost profit or a decrease in property valuation.

They can, however, increase rent by a particular amount at periodic intervals by including an escalation provision in the rental contract. As a result, they may capitalize on current market conditions. At the same time, the tenant can secure and safeguard their long-term contract.

The tenant’s financial obligations

On the other hand, landlords can demand that their tenants pay a pro-rata share of the growing building expenses. These payments may cover the premises’ operating charges and various real estate taxes. In matters of a commercial lease, the landlord will incorporate their legal requirements into the escalation or stop clause. Therefore, a renter’s payment determined under the stop clause will be considered a supplement to the standard rent the tenant covers.

Consequences of contract breach

In other words, the stop clause can set contract termination conditions. For instance, a theater proprietor signs an agreement with the producers of a theatrical performance. In the deal, they stipulate that the showrunners must leave the venue in the case that receipts of payment don’t add up to a certain amount.  

Final thoughts

As you observed, knowing the leasing contract’s terms and provisions is paramount both for tenants and property owners.

Suppose you entertain the idea of becoming a landlord. First and foremost, we advise you to investigate the rental market conditions in your area, such as where you should purchase a rental property first. Then, study previous lease contracts and include necessary clauses into your agreement to safeguard your financial investment.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

Small furnace placed between the studs of a wall. It is typically electric, but in the past more frequently was gas. ...

Tile placed on a wall as decoration, such as in a bathroom or kitchen. ...

Claim of a person or business to real property such as by exercising an option. ...

An accessory building is an outdoor structure used by the occupants of the main building or house. They have different functions and can be detached or attached to the main building on the ...

The basic home inspection definition is well-known for everyone, right?However, when it comes to real estate, the term “inspection” can serve a bunch of purposes – but the ...

Statement made verbally. It is better legally to have a written statement because verbal ones without witnesses may be denied. ...

Increase in the outstanding loan balance arising when the mortgage payment does not fully meet the interest charge on the loan. This occurs under indexed loans or when the indexed rate ...

Valuation method for land or improvements to property. It takes into account gross rentals less operating expenses. ...

A clause inserted in a mortgage agreement requiring a future buyer of the subject property to obtain the consent of the lending institution prior to assuming the mortgage. In this ...

Popular Real Estate Questions