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.
Iowa Gross up Clause that Should be Used in an Expense Stop Stipulated Base or Office Net Lease
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Correctly drafted, a gross up provision relates only to Operating Expenses that ?vary with occupancy??so called ?variable? expenses. Variable expenses are those expenses that will go up or down depending on the number of tenants in the Building, such as utilities, trash removal, management fees and janitorial services.
Definition of tax stop clause in a lease that stops a lessor from paying property taxes above a certain amount. a clause in a lease that stops a lessor from paying property taxes above a certain amount.
For the tenant, the benefit of an expense stop is that it reduces their required contribution to the landlord's operating expenses.
In a full service gross lease, the tenant pays a base rental rate, and landlord is typically responsible for paying any additional expenses (such as CAM fees), except for those that go above a specific amount, called an expense stop.
An expense stop is the maximum amount a landlord will spend on operating expenses. Any amount above the expensive stop becomes the tenant's responsibility.
Simply stated, the concept of ?gross up provision? stipulates that if a building has significant vacancy, the landlord can estimate what the variable operating expense would have been had the building been fully occupied, and charge the tenants their pro-rata share of that cost.
A mechanism in a Full Service Gross Lease, the Expense Stop is a fixed amount of operating expense above which the tenant is responsible to pay. Thus, the landlord is responsible to pay for all operating expenses below the Expense Stop, while the tenant is responsible for any amount above the Expense Stop.
Expense stops protect the lessee from unexpected changes in market rents. A gross lease is riskier for the lessor than a net lease. Net operating income is the income after deduction of mortgage payments. If a lease has free rent earlier in its term, its default risk might be considered slightly higher.
