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.
Texas Gross up Clause that Should be Used in a Base Year Lease
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FAQ
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.
A Base Year clause is found in many Full-Service and Gross Leases. It is not found in triple net leases. The Base Year clause is a year that is tied to the actual amount of expenses for property taxes, insurance and operating expenses (sometimes called CAM) to run the property in a specified year.
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.
It is a contract between a landlord and tenant, wherein the lessee, in exchange for the exclusive use of a piece of property, agrees to pay the lessor a fixed sum of money for a certain period of time that encompasses rent and all costs associated with ownership, such as taxes, insurance, and utilities.
Grossing Up is a process for calculating a tenant's share of a building's variable operating expenses, where the expenses are increased for expense recovery purposes, or Grossed Up, to what they would be if the building's occupancy remained at a specific level, typically 95%- 100%.
Gross-ups are also practical for tenants. A prime example is a lease with a base year or expense stop. If a tenant negotiates a base year, then, in most cases, the tenant will pay its share each year of the operating expenses which exceed the base year's expenses.
So, what is a gross-up provision? 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.
