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 Hawaii Gross Up Clause for Base Year Leases: Types and Importance Introduction: In the realm of commercial real estate leases, understanding the intricacies of financial provisions is crucial. One such provision is the Hawaii Gross Up Clause, an essential component often included in base year leases. This article will provide a detailed description of the Hawaii Gross Up Clause, its relevance, and the different types that can be used. 1. What is a Hawaii Gross Up Clause? The Hawaii Gross Up Clause is a provision that helps landlords account for variations in occupancy levels and operating expenses over the base year (typically the first year) of a lease. It allows the landlord to adjust the tenant's operating expense obligations proportionately to reflect an assumed, fully occupied building, even if the actual occupancy during the base year is lower. 2. Importance of Hawaii Gross Up Clause in a Base Year Lease: — Accurate Rent Calculation: By grossing up operating expenses, the landlord ensures that the tenant's rent reflects expenses as if the property were fully occupied. — Fairness among Tenants: It provides fairness among tenants by ensuring proportional expense allocation irrespective of occupancy levels. — Financial Stability: The clause protects the landlord from potential income shortfalls resulting from tenants who vacate or default during the base year. Types of Hawaii Gross Up Clauses in Base Year Leases: a. Occupancy Gross Up: This type of Hawaii Gross Up Clause accounts for variations in operating expenses based on the percentage of occupied space during the base year. The landlord will estimate expenses that would have been incurred if the property were fully occupied and adjust the tenant's obligations accordingly. It is suitable when vacancies are expected during the base year. b. Expense Budget Gross Up: In this type, the Hawaii Gross Up Clause allows the landlord to estimate operating expenses that would have been incurred during the base year, assuming full occupancy. The tenant's obligations are then adjusted proportionately, regardless of the actual occupancy levels. This type is preferred when variations in occupancy are uncertain or difficult to predict. c. Combination Gross Up: As the name suggests, the combination gross up clause combines the occupancy and expense budget approach. It provides flexibility to landlords by utilizing either method (occupancy or expense budget gross up) depending on the specific circumstances. It caters to situations where both occupancy uncertainties and unpredictable expenses are factors. Conclusion: In summary, Hawaii Gross Up Clauses play a pivotal role in base year leases, ensuring fair allocation of expenses and accurate rent calculations. By employing types such as Occupancy Gross Up, Expense Budget Gross Up, or even a Combination Gross Up, landlords can protect their financial interests and maintain stability in their commercial properties. Understanding the nuances of Hawaii Gross Up Clauses will undoubtedly empower both landlords and tenants during lease negotiations.
