Please Rotate Your Device
Realty tax gross up is the act of the landlord always charging you the correct amount of realty tax, regardless of the vacancy rate for the building. For example, if you rent 15% of a building and another tenant has 85% and that tenant moves out, you should remain at 15% of the total realty tax bill (not 100%).
Operating costs are a significant percentage of overall gross rent and usually realty taxes make up the largest component of operating costs - somewhere in the neighborhood of 50% in some cases.
It is not uncommon to see realty taxes as 25% of your total gross rent amount.
Sample Realty Tax Gross Up Lease Clause:
To the extent that Taxes vary with the level of occupancy of the Building the Proportionate Share of Taxes shall be adjusted as if the Building were 100% occupied (hereinafter referred to as "Taxes Gross Up"). This Taxes Gross Up is for the sole purpose of equitably dividing Taxes among the tenant(s) actually occupying the Building and is to ensure that:
(a) this Lease is on an absolutely net net basis to the Landlord; and
(b) the Landlord is not subsidizing any tenant in the Building for costs that would otherwise be paid in full by the tenants if the Building was in fact 100% occupied.
For further clarity the Landlord shall not profit from the Taxes Gross Up and any Taxes Gross Up shall be net revenue neutral with respect to cost recovery to the Landlord.
Translation: paying for realty taxes will be fair. If you have 8% of a building, you will pay 8% of the total realty tax bill. It will not change when the landlord has vacancies - the landlord will pay those realty taxes and take the loss.
The sample realty tax gross up clause above went on to say:
In addition, the Tenant shall pay, as Additional Rent, together with its monthly instalment of Operating Costs, a management fee equal to fifteen percent (15%) of all Operating Costs payable by the Tenant pursuant to this Lease (excluding only any Taxes included in Operating Costs, if any), disregarding any reduction, limitation, deferral or abatement of any amount in the nature of Rent.
Translation: you are giving the landlord a 15% tip for the work they do to administer the building. While this is not uncommon (nobody works for free), sometimes you can exclude the realty tax bill from this equation.
That is because it is a big ticket item and it's just a bill that they pay on your behalf. But...you have to know to ask for it to be excluded from your additional rent calculation prior to negotiating for your space. Note that in the clause above, the tenant was protected by the wording "excluding only any Taxes"?
Still stuck? Consider a lease review to get unstuck.