This office lease clause should be used in an expense stop, stipulated base or office net lease. 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 for each lease year to determine what the building operating costs. Such an adjustment shall be made by the landlord increasing the variable components of such variable costs included in the building operating costs which vary based on the level of occupancy of the building.
Guam Gross Up Clause: A Guide for Expense Stop Stipulated Base or Office Net Lease In the realm of commercial real estate, one must be familiar with various lease clauses that can greatly impact the terms of a lease agreement. One such clause is the Guam Gross Up Clause. Specifically designed for Expense Stop Stipulated Base or Office Net Lease, this clause addresses the issue of expenses that are subject to increase during the lease term. What is the Guam Gross Up Clause? The Guam Gross Up Clause is a clause included in a lease agreement which ensures that tenants are not burdened with additional costs due to fluctuations in certain expenses. It provides a mechanism for adjusting the expense base to account for unexpected increases, thereby preventing the tenant from facing unexpected financial strains. When Should the Guam Gross Up Clause be Used? The Guam Gross Up Clause is particularly relevant for Expense Stop Stipulated Base or Office Net Lease agreements. An Expense Stop Stipulated Base means that the landlord agrees to cover a specific amount of expenses, after which the tenant is responsible for any costs exceeding that limit. In such cases, using the Guam Gross Up Clause helps establish a fair solution to possible cost variations over time. Types of Guam Gross Up Clauses: 1. Fixed Increase Percent Clause: This type of clause sets a predetermined percentage by which the expense base can be increased annually. For example, if the fixed increase percent is set at 3%, the expense base will be adjusted by this percentage each year to account for rising costs. 2. Consumer Price Index (CPI) Adjustment Clause: This clause links the expense base to the changes in the Consumer Price Index, which measures the average price change over time of a market basket of goods and services. The CPI adjustment ensures that the expense base fluctuates in accordance with changes in the overall economy. 3. Market Comparison Clause: This type of clause compares the tenant's expenses to the average expenses of similar properties in the same geographical area. If the tenant's expenses exceed the average, the clause allows for an adjustment to bring them in line with market standards. Benefits of Using the Guam Gross Up Clause: 1. Cost Protection: The clause provides protection for tenants against unforeseen increases in expenses, preventing them from being unfairly burdened with additional costs. 2. Predictability: By establishing a mechanism to adjust the expense base, both landlords and tenants have a clear understanding of how the costs will be evaluated and adjusted throughout the lease term. 3. Fairness: The Guam Gross Up Clause promotes fairness between the parties involved by ensuring that any expense increases are distributed proportionately based on the agreed-upon methodology. In conclusion, the Guam Gross Up Clause plays a crucial role in minimizing financial risks for tenants in Expense Stop Stipulated Base or Office Net Lease agreements. By utilizing different types of clauses, such as the Fixed Increase Percent Clause, CPI Adjustment Clause, or Market Comparison Clause, landlords and tenants can establish a fair and flexible approach to handling fluctuations in expenses.
