Which statement accurately reflects a cause of slippage?

Which statement accurately reflects a cause of slippage?

• A. Tenants with semi gross leases will have base amounts that are not exceeded by the escalatable cost pool.
• B. All leases have no caps and always recover costs fully.
• C. Operating expenses for vacant spaces are always recoverable.
• D. Area caps do not affect cost recovery.

Answer: (A)

Slippage in budgeting for operating expenses happens when the amount recovered from tenants for controllable costs doesn’t align with what was forecast, and a big driver is how leases allocate those costs. In a semi-gross lease, there is a base amount for operating expenses built into rent, and only costs above that base are potentially recoverable through an escalatable cost pool. If the base amount is set so it isn’t exceeded by the escalatable cost pool, the tenant pass-through stays within the expected range and the predictability of recoveries improves. That setup directly limits unexpected recoveries beyond what was planned, which is a primary way to avoid slippage. The other statements describe conditions that aren’t typical or accurate in how cost recovery works. Leases aren’t universally without caps and guaranteed to recover all costs; operating expenses for vacant spaces aren’t always recoverable in full; and area caps do affect how much can be recovered.

Slippage in budgeting for operating expenses happens when the amount recovered from tenants for controllable costs doesn’t align with what was forecast, and a big driver is how leases allocate those costs. In a semi-gross lease, there is a base amount for operating expenses built into rent, and only costs above that base are potentially recoverable through an escalatable cost pool. If the base amount is set so it isn’t exceeded by the escalatable cost pool, the tenant pass-through stays within the expected range and the predictability of recoveries improves. That setup directly limits unexpected recoveries beyond what was planned, which is a primary way to avoid slippage.

The other statements describe conditions that aren’t typical or accurate in how cost recovery works. Leases aren’t universally without caps and guaranteed to recover all costs; operating expenses for vacant spaces aren’t always recoverable in full; and area caps do affect how much can be recovered.