This office lease clause should be used in a base year lease. This form states that when the building is not at least 95% occupied during all or a portion of any lease year the landlord shall make an appropriate adjustment in accordance with industry standards of the building operating costs. This amount shall be deemed to be the amount of building operating costs for the year.
Title: Understanding the California Gross Up Clause in Base Year Leases: Types and Importance Introduction: In a commercial real estate lease, landlords often include a California Gross Up Clause to address the fluctuations in operating expenses, particularly in relation to taxes, throughout the lease term. This clause plays a significant role in calculating the tenant's overall rental obligation and maintaining fairness between both parties. In this article, we dive into the details of the California Gross Up Clause that should be used in a Base Year Lease, exploring its various types and highlighting their importance. 1. California Gross Up Clause in a Base Year Lease: The California Gross Up Clause is a provision that allows landlords to adjust the base year operating expenses when determining the tenant's share of expenses for subsequent years. Its purpose is to account for any variation in operating expenses throughout the lease term due to factors such as property taxes, insurance, utilities, maintenance, and more. 2. Types of California Gross Up Clause in a Base Year Lease: a) Proportional Gross Up Clause: This type of clause requires the landlord to calculate and adjust the tenant's share of operating expenses based on the increase or decrease in expenses above the base year operating expenses. The adjustment factors are proportionate to the tenant's leased space compared to the total leasable area. b) Fixed Gross Up Clause: In this variation, the landlord determines a fixed percentage increase in operating expenses each year, regardless of the actual expenses incurred. This fixed percentage is then applied to the base year expenses to determine the tenant's share. c) Expense-Stop Gross Up Clause: This clause requires the landlord to set an expense-stop amount. Expenses above this threshold get grossed up and factored into the tenant's share. The purpose of the expense-stop is to prevent the tenant from paying for extraordinary expenses. 3. Importance of California Gross Up Clause in a Base Year Lease: a) Fairness and Cost Allocation: The gross up clause ensures that tenants are responsible for their fair share of operating expenses, based on factors such as space occupancy and usage. It prevents one tenant from shouldering a disproportionate burden of expenses. b) Mitigating Operating Expense Fluctuations: By incorporating a gross up clause, landlords can accurately account for changes in expenses without significantly impacting the tenant's annual rental obligations. This protects both parties from unforeseen spikes in operating costs. c) Budget Predictability: The California Gross Up Clause allows both landlords and tenants to forecast future operating expenses more accurately. The clause facilitates financial planning and enables tenants to account for potential increases in their lease obligations. Conclusion: In conclusion, the California Gross Up Clause is a vital aspect of Base Year Leases, ensuring fairness, cost allocation, and budget predictability for both landlords and tenants. The various types of gross up clauses, including proportional, fixed, and expense-stop variations, offer flexibility and cater to specific lease agreement requirements. When entering into a commercial lease in California, it is crucial to understand and negotiate the terms of this clause to minimize confusion and maintain transparency throughout the lease term.
