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.
Virginia Gross up Clause that Should be Used in an Expense Stop Stipulated Base or Office Net Lease
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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%.
Many commercial leases include provisions allowing landlords to ?gross-up? operating expenses. This means that if the building is not fully occupied, the landlord can bill the expenses to the tenants as if the building is fully occupied.
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.
Many commercial leases, especially office leases, include a provision that allows landlords to ?gross up? operating expenses. That is, if the building is not fully occupied, the landlord is empowered to gross up or overstate the expenses as if the building is fully occupied (or nearly full).
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.
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.
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.
