Gross Up Provisions in Commercial Lease Agreements: Guidance for Landlords and Tenants

Structuring Terms to Balance Benefits and Mitigate Risks

Recording of a 90-minute CLE webinar with Q&A


Conducted on Thursday, September 6, 2018

Recorded event now available

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Program Materials

This webinar will focus on the drafting, negotiation, and pitfalls of gross-up provisions in commercial leases. The panel will provide an overview of their benefits for landlords and practical guidance for balancing the associated risks for commercial tenants.

Description

Commercial lease agreements often apportion a pro-rata share of the building's operating expenses to tenants. Beyond fixed expenses like insurance and taxes, tenants also share in the variable costs, such as maintenance, janitorial, and utilities. As expected, these provisions divide costs among tenants based on their share of leased square footage—a relatively straightforward exercise.

Variable expenses, however, fluctuate based on occupancy and from month to month during a tenancy; landlords rely on the concept of “grossing up” the tenant's share as for a fully occupied building.

This practice benefits landlords by shifting some of the vacant space operating expense to the building's current tenants. While considered one-sided to the uninitiated, well-drafted gross-up provisions can benefit tenants when operating costs are part of a base-year amount, with the tenant then only responsible for its pro-rata share of operating expenses that exceed the base year's.

Listen as our panel of experienced real estate attorneys provide practical insight into how these provisions can be leveraged to provide additional value for landlords and potentially overlooked protections for commercial tenants.

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Outline

  1. Defining gross up
    1. Fixed vs. variable expenses
    2. Interplay with other expense provisions
  2. Landlord perspectives
    1. Goals in drafting
    2. Protections
    3. Avoiding pitfalls
  3. Tenant perspectives
    1. Goals in drafting
    2. Protections
    3. Avoiding pitfalls

Benefits

The panel will review these and other high priority issues:

  • How can commercial tenants use gross-up provisions to avoid spikes in their pro rata share of operating expenses after base year?
  • What additional provisions should counsel consider when negotiating and drafting gross-up clauses?
  • How can landlords best use gross-up provisions in properties slated for or undergoing green renovations?

Faculty

Bregman, Douglas
Douglas M. Bregman

Principal
Bregman Berbert Schwartz & Gilday

Mr. Bregman has maintained a general civil law practice for over 35 years focusing on transactional real estate and...  |  Read More

Carey, Iryna
Iryna Lomaga Carey

Partner
Kurzman Eisenberg Corbin & Lever

Ms. Carey’s practice focuses on commercial real estate transactions including: commercial sales and...  |  Read More

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