What type of leasing arrangement has rent based on operating costs?

In a leasing arrangement where the rent is based on operating costs, the terminology used is known as an escalator lease. This type of lease typically includes provisions that allow for adjustments in rent reflecting increases in operating expenses, such as maintenance, utilities, and property taxes. The goal is to ensure that the landlord can cover the rising costs associated with owning and managing the property while also providing transparency to the tenant about how those costs impact rent.

In this arrangement, tenants may experience periodic increases in rent, aligning their payments with the actual operating costs incurred by the property. This helps to prevent significant disparities over time between the rent charged and the actual expenses associated with running the property. As such, an escalator lease provides a structure that can adapt to changes in costs, making it a common choice in commercial real estate leases where expenses can fluctuate significantly.