Free calculator · Real Estate
Lease Economics: Expense Stop & Net Effective Rent
Calculates expense-stop or base-year expense recoveries and the net effective rent for a single office or retail lease. Inputs include rentable area, starting rent and annual escalation, lease term, free rent, tenant improvement allowance, and Year 1 operating expenses with a growth rate.
By Devon Coombs, CPA, MBA · Teaching Professor of Finance, Santa Clara University · Reviewed August 2026
From the author: Devon Coombs, CPA, MBA teaches finance at Santa Clara University and works with corporate teams on practical AI.
AI training for finance teams · Consulting · The 10 Laws of Finance
Interactive Tool
Lease Economics: Expense Stop & Net Effective Rent
Lease terms
Expense stop structure
Base-year lease: the stop equals Year 1 expenses ($10.00/SF), so the tenant pays increases above the base year.
Year-by-year rent & expense recoveries
| Year | Base rent | Opex /SF | Tenant reimburses |
|---|---|---|---|
| Year 1 | $300,000 | $10.00 | $0 |
| Year 2 | $309,000 | $10.40 | $4,000 |
| Year 3 | $318,270 | $10.82 | $8,160 |
| Year 4 | $327,818 | $11.25 | $12,486 |
| Year 5 | $337,653 | $11.70 | $16,986 |
| Total | $1,592,741 | $41,632 |
reimbursement (each year) = max(0, expenses/SF − stop $10.00/SF) × 10,000 SF
Expense stop
$10.00/SF
base year = Yr 1 opex
Total recovery (term)
$41,632
over 5 years
Avg recovery / yr
$8,326
landlord reimbursement
Net effective rent (NER)
Free rent value
$75,000
3 mo at Yr 1 rate
TI allowance
$500,000
$50/SF × 10,000 SF
Net Effective Rent
$20.35
per SF per year
NER = (base rent − free rent − TI) ÷ term ÷ SF = ($1,592,741 − $75,000 − $500,000) ÷ 5 ÷ 10,000 = $20.35/SF/yr
Learn the concept
This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.
Embed this calculator on your site
Free to embed on any site; the widget includes an attribution link back to this page.
One useful finance email a week
A tool, a number worth knowing, and what it means for your money or your business. From Devon Coombs, CPA, MBA. No spam, unsubscribe anytime.
Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.