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.
Title: Understanding the Maryland Gross Up Clause in an Expense Stop Stipulated Base or Office Net Lease Introduction: In this article, we will delve into the concept of the Maryland Gross Up Clause, its significance in expense stop stipulated base or office net leases, and explore different types of this clause that can be utilized to protect both the landlord and tenant. Understanding these clauses is crucial for parties entering into a net lease agreement or seeking to negotiate their lease terms effectively. Let's explore further. 1. What is a Gross Up Clause? A Gross Up Clause is a provision commonly included in commercial leases to account for operating expense increases in multi-tenant properties. It allows the landlord to adjust the tenant's proportionate share of operating expenses when the occupancy rate of the building is less than 100%. The purpose is to ensure that each tenant effectively pays their fair share of expenses that would typically be distributed among a fully occupied property. 2. The Importance of the Maryland Gross Up Clause: The Maryland Gross Up Clause becomes particularly relevant in a lease agreement where there is an Expense Stop stipulated base or an Office Net Lease structure. With an Expense Stop, the tenant is responsible for covering allocated operating expenses up to a specific predetermined amount. Anything above this limit is the landlord's responsibility. Therefore, the Gross Up Clause becomes essential to accurately allocate expenses when the occupancy rate changes during the lease term. 3. Types of Maryland Gross Up Clauses for Expense Stop Stipulated Base or Office Net Leases: a. Occupancy-Based Gross Up Clause: This type of Gross Up Clause in Maryland's commercial leases allows the landlord to adjust the tenant's expense allocation based on the occupancy rate of the building. When vacancies occur, the landlord may include an additional charge to cover the expenses that would typically be distributed among the absent tenants. b. Percentage-Based Gross Up Clause: In this type of clause, the landlord adjusts the tenant's expenses based on a predetermined percentage. For example, if the occupancy rate falls below 90%, the landlord may increase each tenant's expense allocation by 10% to ensure fair distribution without disproportionately burdening a single tenant. c. Market-Based Gross Up Clause: This variation involves adjusting expenses according to market conditions. It allows the landlord to take into account rent and operating expenses of neighboring properties when determining each tenant's allocation. By benchmarking against prevailing market rates, this clause ensures relative fairness. d. Hybrid Gross Up Clause: Some lease agreements may combine elements of the above types to customize the Gross Up Clause based on the unique needs of the landlord or tenant. For instance, a hybrid clause may consider both occupancy rate and market conditions to determine expense allocation. Conclusion: The Maryland Gross Up Clause is a critical provision in expense stop stipulated base or office net leases that enables fair distribution of operating expenses among tenants. By utilizing occupancy-based, percentage-based, market-based, or hybrid Gross Up Clauses, landlords and tenants can protect their interests and ensure equitable sharing of financial burdens. Understanding these clauses and their variations is essential in negotiating or entering into a commercial lease agreement in the state of Maryland.
