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.
Wake North Carolina Gross up Clause that Should be Used in a Base Year Lease
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FAQ
Commercial leases will often have a provision in the lease that permits the landlord to gross up, or overstate the variable operating expenses of the property to the level of operating expenses that would have been incurred had the building been fully occupied for the year.
The Base Year 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. In a new lease, the Base Year is most often the year the lease is executed or the year in which the lease commences.
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.
The first step is to multiply the variable portion of the expenses ($850,000 66.67%) resulting in a subtotal of $566,667. Next, the fixed expenses of $150,000 are added to the subtotal bringing the total expense pool to $716,667. Now assume the expense reimbursement is has a base amount of $100,000.
'Make good' refers to the clause/s in a lease that set out how a tenant should leave a property at the end of the lease term. Basically, when the day comes to hand back the keys to the landlord, the property should be in the condition that is stipulated in the lease.
That's why the gross-up clause often will take any occupancy below 95% as if the building were 95% occupied (or fully occupied, as the lease may read). In our example, the one tenant occupying 50% of the building would pay $95,000 (representing the 95%) while the landlord would absorb the remaining $5,000.
Commercial leases will often have a provision in the lease that permits the landlord to gross up, or overstate the variable operating expenses of the property to the level of operating expenses that would have been incurred had the building been fully occupied for the year.
The first step is to multiply the variable portion of the expenses ($850,000 66.67%) resulting in a subtotal of $566,667. Next, the fixed expenses of $150,000 are added to the subtotal bringing the total expense pool to $716,667. Now assume the expense reimbursement is has a base amount of $100,000.
Expense categories that are typically grossed up include cleaning (tenant-occupied areas only), utilities, management fees, and possibly (but not always) other costs such as trash removal, building personnel costs, electrical supplies and elevator main- tenance, all depending upon the relevant circumstances.
- Gross lease (sometimes referred to as fully gross). With a Net lease, a tenant is responsible for rent, plus all outgoings in addition to this rent. In the case of the Gross lease, all outgoings are included in the rent.
