AI Review for Gross Office Lease Agreements

What is a Gross Office Lease Agreement?

A Gross Office Lease Agreement (OLA) is a legally binding contract between a landlord (Lessor) and a tenant (Lessee) that outlines the terms and conditions for the rental of commercial office space. In a Gross Lease, the Lessee pays a flat rent in exchange for use of the space, and the Lessor is responsible for all costs associated with the ownership and operation of the property, such as utilities, maintenance, insurance, and property taxes.

Gross OLAs are the simplest type of lease for commercial office space. Although these types of OLAs may carry higher monthly rents than Net leases, they make it much easier for a tenant that is a new or lean business to budget for and project its future costs related to overhead.

Gross OLAs are commonly used in many industries, especially those that have simple needs or need simplicity when it comes to renting office space. Some of these industries include:

• Technology and Software: Start-ups in the technology sector, including software-as-a-service (SaaS) providers, mobile app developers, and IT/computer support services, often have a need for simplified accounting regarding overhead and predictability in forecasting future costs as well as few specific requirements for their office space.
• Professional Services: Small and mid-sized accounting and law firms, mental health practices, financial services companies, marketing and advertising firms, human resources staffing and recruiting companies, private investigation firms, insurance companies, publishers, travel agencies, relocation services, business and image consulting firms, etc.
  

Additionally, Gross Leases are often used for small retail spaces, though it is advisable for the Lessor to consider whether the Gross OLA needs to be appropriately modified for the retail scenario.

Note: Net leases are most likely to be appropriate for the leasing of entire real estate developments such as office parks, corporate campuses, etc.

Why Use a Gross Office Lease Agreement?

There are several key reasons why businesses should use Gross OLAs:

1. Simplicity: Gross OLAs are the simplest type of lease for commercial office space. By bundling all costs associated with the property into a single, flat rent payment, Gross OLAs make it easier for tenants to understand and manage their lease obligations.
2. Budgeting and forecasting: For new or lean businesses, Gross OLAs make it much easier to budget for and project future costs related to overhead. With a fixed rent payment that includes all property-related expenses, tenants can more accurately predict their monthly occupancy costs.
3. Reduced administrative burden: Because the Lessor is responsible for paying all property-related expenses, Gross OLAs reduce the administrative burden on tenants. Tenants do not need to worry about receiving and paying multiple bills for utilities, maintenance, insurance, and property taxes.
4. Beneficial for Lessors: There are also benefits to Gross Office Leases for Lessors, such as the fact that consistent rent payment may be more appealing to some tenants, accounting for the property is simplified, and the Lessor can charge a higher rent because the rent is all-inclusive.
   

It should be noted that no two Gross leases will be exactly the same and that many are modified ("Modified Gross Leases") such that the Lessee pays the rent, which includes most, but not all, additional expenses. For example, the lease may stipulate that the Lessee will pay rent plus its proportionate share of utilities, but that the Lessor pays all other expenses. Or in a retail space rental, the Modified Gross Lease may, for example, require the tenant to pay for repairs to a particular part of the property where they will be making changes.

The OLA-Gross for LegalOn is indeed a pure Gross Lease. As such, it provides not only the most simplified form of agreement for the parties with respect to an office lease, but it can serve as the basis from which to modify the lease to suit the unique needs of the parties. (Notably, a Modified Gross Office Lease and a Triple Net Lease have already been written by Legal Content and are in the pipeline for release at some future time.)

What Should Be Included in a Gross Office Lease Agreement?

The top provisions to consider in a Gross Office Lease Agreement are:

1. Grant of Lease: It is paramount that this clause accurately and clearly describes the size and location of the premises that are the subject of the lease, including any Common Areas that the Lessee is permitted to use.
2. Rent: This clause sets out the rent to be paid by the Lessee, the frequency of that payment (monthly or annually), the date on which rent is due (e.g., the first of the month), and whether or not it is to be prorated.
3. Lease Term: This clause defines the length of the lease, specifically when it begins and when it ends. This is a key provision because how the start date is defined can impact how much the tenant is paying before being able to use the space, and failure to clearly define the date on which the lease ends can result in legal disputes.
4. Common Areas: Unless the Lessee is renting the entire property or building, this clause is important to include because it provides assurance that the Lessee understands it will not have an exclusive right to use the areas of the property that are to be shared with the Lessor and/or other tenants of the Lessor (e.g., lobbies, fitness facilities, outdoor seating, parking, etc.) and that the Lessee will comply with any rules set by Lessor with respect to their use.
5. Signage: This clause is important because it establishes who can place signage with respect to the Lessee's business, whether the Lessor has set criteria for such signage and its placement, and who is responsible for removing and/or replacing such signage.
6. Assignment & Subletting: This clause addresses whether, under what circumstances, and subject to which conditions the Lessee can assign its rights under the lease or sublet the leased property to a third party.
7. Waiver of Subrogation: This clause is often overlooked, but is crucial for both parties because it ensures that neither party is sued by the other party's insurance company after a claim is made in respect to the leased property. This clause should also mandate that notice of the waiver is given by the parties to their respective insurers so that their insurance policies are not invalidated by the waiver.
8. Indemnification: This clause is essential to ensure that the parties allocate the costs of any damages or third party claims in a fair and equitable manner between them based on the respective actions of the parties.
   

In addition to these top provisions, a comprehensive Gross Office Lease Agreement should also include:

9. Security Deposit: Specify the amount of the security deposit, how it will be held, and the conditions under which it will be returned to the Lessee at the end of the lease term.
10. Use of Premises: Define the permitted use of the leased premises and any restrictions on use. This is important to ensure that the Lessee's intended use complies with zoning laws and the Lessor's preferences.
11. Maintenance and Repairs: Although the Lessor is generally responsible for maintenance and repairs in a Gross Lease, it's important to clearly define each party's responsibilities, especially for any tenant-specific alterations or improvements.
12. Insurance: Specify the types and amounts of insurance that each party is required to carry, such as property insurance, liability insurance, and business interruption insurance.
13. Default and Remedies: Define what constitutes a default under the lease (e.g., non-payment of rent, unauthorized use of premises) and the remedies available to each party in the event of a default (e.g., termination of lease, recovery of damages).
14. Governing Law and Jurisdiction: Specify which state's laws will govern the interpretation and enforcement of the lease and the jurisdiction in which any legal disputes will be resolved.

Checklist for a Good Gross Office Lease Agreement

To ensure that your Gross Office Lease Agreement is effective, comprehensive, and legally sound, use this checklist:

•  Accurately describe the leased premises, including size and location
•  Clearly specify the rent amount, payment frequency, and due date
•  Define the lease term, including start and end dates
•  Address the use of common areas and any associated rules
•  Establish guidelines for tenant signage
•  Specify rights and conditions for assignment and subletting
•  Include a waiver of subrogation clause
•  Allocate liability through an indemnification clause
•  Specify the amount and terms of the security deposit
•  Define the permitted use of the premises and any restrictions
•  Clarify responsibilities for maintenance and repairs
•  Specify insurance requirements for each party
•  Define default conditions and remedies
•  Specify governing law and jurisdiction
•  Ensure the agreement is reviewed by legal counsel
•  Have the agreement signed by authorized representatives of both parties
•  Keep a fully executed copy of the agreement for your records

AI Contract Review for Gross Office Lease Agreements

To give you a sense for the benefits of leveraging ai for contract review trained by lawyers, we’ve selected some sample language our software presents to customers during a review. Keep in mind that these are static in this overview, but dynamic in our software - meaning our AI identifies the key issues and proactively surfaces alerts based on importance level and position (company, 3rd party, or neutral) and provides suggested revisions that mimic the style of the contract and align with party names and defined terms.

These samples represent a small sample of the pre-built, pre-trained AI Contract Review solution for Gross Office Lease Agreements. If you’d like to see more, we invite you to book a demo.

GRANT OF LEASE

For: Both

Alert: May be missing an article covering the grant of lease terms.

Guidance: "In an Office Lease Agreement, it is essential to define lease terms clearly and concisely, particularly the grant of lease rights. Clearly defined rights in the lease document offer important protections and flexibility critical to tenants in leased corporate real estate and helps prevent potential disputes and misunderstandings, ultimately protecting the interests of all parties involved.

Explicit language identifying the type of interest granted by one party to the other as a lease, as opposed to another type of legal right, such as a license, is fundamental to the nature and construction of the contract. A lease grants temporary exclusive control and broader rights over real property, while a license merely permits its limited, revocable use. This affects the allowed activities, security of tenure, flexibility for parties, and has other legal implications. Understanding these distinctions is important in commercial property arrangements."

Sample Language:

GRANT OF LEASE

LESSOR, in consideration of the rents to be paid and the covenants and agreements to be performed and observed by LESSEE, does hereby lease to LESSEE and LESSEE hereby leases from LESSOR the following described [●●] rentable square feet of office space located at [●●]: [●●] (the “Leased Premises”), together with, as part of the parcel, all improvements located thereon.

USE OF LEASED PREMISES

For: Lessor

Alert: May be missing an article covering the use of the leased premises.

Guidance: In an Office Lease Agreement, it is essential to clearly delineate and restrict the use of the leased premises. This can be accomplished by incorporating a clause that explicitly outlines the allowed and prohibited uses of the property, ensuring both parties are aware of their rights and obligations.

This recommendation is significant because it helps avert potential disputes and misunderstandings between the landlord and tenant, ensuring the leased premises are used in a manner consistent with the agreed-upon terms. By providing a clear framework for the use of the leased premises, the likelihood of disputes and potential legal issues is diminished, fostering a harmonious landlord-tenant relationship.

For instance, if a tenant wishes to use the leased premises for a purpose not explicitly permitted in the Office Lease Agreement, the landlord can refer to the specific provision in the agreement to prevent the tenant from engaging in the prohibited activity, thus avoiding potential legal disputes and preserving the property's integrity.

Relevant statutes or laws to consider in this context include local zoning ordinances and building codes, which may impose restrictions on the use of the leased premises. By integrating these legal requirements into the Office Lease Agreement, compliance with applicable laws and regulations can be ensured, further reducing the risk of disputes and potential legal issues.

One notable exception or doctrine that applies to the primary legal principle of permitted use in an Office Lease Agreement is the ""non-conforming use"" doctrine. This doctrine allows a property to continue being used for a purpose that was legally established before the current zoning regulations were enacted, even if the current regulations would not permit such use. However, it is important to note that non-conforming use rights can be lost under certain circumstances, and local jurisdictions may have specific regulations governing non-conforming uses. Therefore, both landlords and tenants should consult with legal counsel and review local laws to ensure compliance.

Sample Language:

USE OF LEASED PREMISES

1. LESSEE shall use the Leased Premises only for [●●] and for no other use whatsoever. 

2. LESSEE shall not use the Leased Premises or any portion thereof for offices of any agency or bureau of any government, foreign or domestic, or any state or political subdivision thereof.

3. LESSEE shall not generate, handle, store, or dispose of any hazardous or toxic materials (as such materials may be identified in any federal, state, or local law or regulation) in the Leased Premises without the prior written consent of LESSOR; provided that the foregoing shall not be deemed to limit the use by LESSEE of customary office supplies in normal quantities so long as such use comports with all applicable laws.

4. LESSEE will conduct its business and control its agents, employees and invitees in such a manner as not to create any nuisance or interfere with, annoy, or disturb neighbors of the Leased Premises, any other lessees of any building encompassing the Leased Premises, or LESSOR in the management of the property on which the Lease Premises is located.

5. LESSEE shall not sell, exhibit, or display any immoral, racist, or pornographic materials, goods, or services in or on the Leased Premises. LESSOR may, in its reasonable discretion, determine whether such materials, goods, or services are immoral, racist, or pornographic in nature.

RULES FOR USE

For: Lessor

Alert: May be missing an article regarding the rules for the use of the leased property.

Guidance: To ensure a seamless leasing experience and avoid potential disputes, it is essential to establish well-defined rules and guidelines for the use of the leased property within an Office Lease Agreement. By incorporating an article that outlines the rights and responsibilities of both parties concerning the property's usage, misunderstandings can be minimized, and a harmonious relationship can be maintained.

For example, if a tenant wishes to use the leased property for a purpose not initially agreed upon, such as operating a business, having clear rules in the lease agreement allows the landlord to refer to the specific article outlining the allowed uses of the property. This prevents unauthorized activities and protects the landlord's interests.

When drafting the lease agreement, it is crucial to consider local zoning ordinances, which dictate the allowed uses of a property, as well as any applicable state or federal laws governing the leasing of commercial or residential properties. This ensures that the rules for the use of the leased property comply with all relevant laws and regulations.

A significant exception to the primary legal principle of permitted use in an Office Lease Agreement is the concept of ""illegal use"" or ""unlawful use."" Tenants are prohibited from using the leased property for any illegal or unlawful purposes under both federal and state laws. Additionally, local zoning laws and regulations may impose restrictions on the use of the leased property, regardless of the terms of the lease agreement. Both landlords and tenants should be aware of and comply with these regulations to avoid potential legal issues and penalties.

Sample Language: 

RULES FOR USE

LESSOR shall, at all times, have the right to promulgate, change, or amend rules in a reasonable manner that LESSOR deems advisable for safety, care, or cleanliness of the Leased Premises and Common Areas (“Rules”). LESSEE and LESSEE’s employees, agents, licensees, and invitees will comply fully with any such Rules, and any changes to the Rules will be forwarded to LESSEE in writing and shall be carried out and observed by LESSEE, which shall be held responsible for compliance with the Rules by its employees, agents, licensees, and invitees. Nothing in this Lease shall be construed to impose upon LESSOR any liability for violation of the Rules by any other lessee, or its employees, agents, licensees, and invitees, or to impose any duty or obligation upon LESSOR to enforce the Rules against them.

Best Practices for Using Gross Office Lease Agreements

To make the most of your Gross Office Lease Agreements and ensure their effectiveness, follow these best practices:

1. Thoroughly inspect the property: Before signing a lease, conduct a thorough inspection of the property to ensure it meets your needs and is in good condition. Document any existing damage or issues that need to be addressed by the Lessor.
2. Negotiate key terms: While the Lessor may present a standard lease agreement, many terms can be negotiated. Consider negotiating items such as rent, lease term, renewal options, tenant improvements, and signage rights.
3. Clarify responsibilities: Make sure that the lease clearly specifies each party's responsibilities for utilities, maintenance, repairs, and other property-related expenses. In a Gross Lease, the Lessor is typically responsible for most of these costs, but it's important to confirm the specifics.
4. Consider future needs: Think about your company's potential growth and future space needs when negotiating the lease. You may want to include options for additional space or the right to sublet or assign the lease if your needs change.
5. Review insurance requirements: Ensure that you understand and can comply with the insurance requirements specified in the lease. If the requirements seem excessive or unnecessary, try to negotiate more reasonable terms.
6. Understand termination rights: Pay close attention to the conditions under which either party can terminate the lease and the consequences of early termination. Make sure you understand your obligations and potential liabilities in the event of a termination.
7. Keep good records: After signing the lease, keep a fully executed copy for your records. Also, maintain copies of any amendments, notices, or other important communications related to the lease.

Conclusion

Gross Office Lease Agreements are a straightforward and effective tool for businesses looking to lease commercial office space without the added complexity of managing property-related expenses. By clearly defining the rights and responsibilities of both the Lessor and Lessee, Gross OLAs provide a strong foundation for a successful and mutually beneficial leasing arrangement.

To ensure the effectiveness of your Gross Office Lease Agreement, it's important to include key provisions such as the grant of lease, rent, lease term, common areas, signage, assignment and subletting, waiver of subrogation, and indemnification. Additionally, the agreement should be tailored to your specific circumstances, thoroughly reviewed by legal counsel, and signed by authorized representatives of both parties.

By following best practices for negotiating, drafting, and managing your Gross Office Lease Agreements, you can create a stable and predictable environment for your business operations, while minimizing potential risks and liabilities associated with leasing commercial office space.