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The gross-up clauses <\/strong>found in some commercial leases (office, industrial and retail space) are rather difficult clauses to conceptualize and understand for the majority of tenants and even for the various stakeholders in the field of commercial real estate.\u00a0<\/strong><\/p>\n These clauses are generally found in the section of the lease which deals with the additional rent, which enumerates the rules that a lessor must follow in order to re-invoice the tenants for the operating expenses he has incurred on his property during a year. The inclusion of gross-up clauses in the landlords\u2019 standard leases has increased in recent years.<\/p>\n We are starting today a series of blogs dealing with these clauses. In the next lines, I will try to define and explain the concept with rudimentary and simplified examples.<\/p>\n \u00a0<\/strong><\/p>\n A gross-up clause is a permission granted to the lessor to artificially increase<\/u> an operating cost, the quantum of which usually varies according to the occupancy rate of the building. This increase is generally applicable to variable expenses<\/u> that are incurred in the leased premises<\/u> of the building. The actual cost escalation rate is influenced by the average occupancy rate of the building for a fiscal year. If properly interpreted and calculated, the gross-up clause allows for a more equitable allocation, between the lessor and tenants, of costs for services rendered in the lease premises.<\/strong><\/p>\n \u00a0<\/p>\nWhat is it exactly?<\/strong><\/em><\/h2>\n
Examples to illustrate the concept<\/strong><\/em><\/h2>\n