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.
Travis Texas Gross up Clause that Should be Used in a Base Year Lease
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Multi-State
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Travis
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US-OL19034IA
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FAQ
Gross lease a lease whereby the total rental includes any outgoings. Landlord's fixtures and fittings refers to things attached to the property like lights, kitchen cupboards etc, which are leased with the premises.
In a base year lease, a base year is selected (usually the first year of the lease). The landlord agrees to pay the property's expenses for the base year. The landlord continues to pay the property expenses at the base year level and the tenant agrees to pay its pro rata share of any increases in property expenses.
A base year is the first of a series of years in an economic or financial index. It is typically set to an arbitrary level of 100. New, up-to-date base years are periodically introduced to keep data current in a particular index. Any year can serve as a base year, but analysts typically choose recent years.
If the business is in a highly desired physical location, the property's landlord may be willing to consider an early termination of the lease. Business owners can attempt to negotiate with the landlord to terminate the lease early by offering a lump-sum payment to end the lease.
- 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.
'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.
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.
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.
