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.
Colorado Gross Up Clause in Base Year Lease: A Detailed Description and Types In commercial real estate leases, the Gross Up Clause is a crucial provision that addresses the issue of increasing operating expenses over time. Specifically, in the context of a Base Year Lease in Colorado, this clause ensures that the tenant is responsible for their fair share of the property's operating costs, even if those costs rise above the base year level. Let's delve into the details of what this entails and explore different types of Gross Up Clauses commonly used in Colorado. The purpose of the Gross Up Clause is to protect both the landlord and the tenant from unforeseen increases in operating expenses, such as property taxes, insurance premiums, maintenance costs, and utilities. Without a Gross Up Clause, tenants might end up shouldering a disproportionately higher share of these costs, which can adversely impact their business operations. The Colorado Gross Up Clause in a Base Year Lease typically follows these guidelines: 1. Base Year Determination: — The clause starts by clearly defining the base year against which future expenses will be measured. It is usually the first year of the lease term, ensuring a benchmark for calculation purposes. — The lease agreement specifies the types of expenses to be included in the calculation, commonly referred to as "Operating Expenses," which may vary depending on the property and lease terms. 2. Grossing Up Calculation Method: — The Gross Up Clause provides a method for adjusting the tenant's share of expenses to reflect their proportionate share in the event that certain expenses increase above the base year level. — There are different methods to calculate the adjustment. Some base it on the percentage increase in expenses above the base year, while others may use a fixed percentage or apply a formula based on square footage or occupancy rates. 3. Tenant's Responsibility: — The lease stipulates that the tenant is obligated to pay their proportionate share of the expenses, as adjusted using the Gross Up Clause. — It may provide guidance on how and when the adjusted amount should be paid — whether through direct payments or incorporated into the monthly rent. Types of Gross Up Clauses used in a Colorado Base Year Lease: 1. Linear Gross Up Clause: — This method applies a fixed percentage to increase the tenant's share of expenses above the base year. For example, if expenses increased by 10% compared to the base year, the tenant would be responsible for paying an additional 10%. 2. Expense Stop Gross Up Clause: — This approach sets a threshold for expenses, beyond which the Gross Up Clause is triggered. Once the expenses exceed the agreed-upon limit, the tenant will be responsible for the excess amount in proportion to their share. 3. Ratio Gross Up Clause: — This type is based on occupancy rates or square footage ratios. It adjusts the tenant's share of expenses based on the tenant's proportionate space within the property. It ensures that each tenant contributes fairly, depending on the size of their leased area. Furthermore, it is essential for both landlords and tenants to carefully negotiate and define the specific Gross Up Clause that suits their needs when entering into a Base Year Lease in Colorado. By doing so, they can ensure fairness and transparency in sharing the burdens of rising operating expenses while maintaining a mutually beneficial relationship throughout the lease term.
