Question 1

What does a landlord cover under a Michigan gross commercial lease?

Accepted Answer

Under a Michigan gross commercial lease, the landlord pays operating expenses such as property taxes, building insurance, and maintenance from the base rent collected. The tenant makes one rent payment without receiving separate bills for those expenses. Michigan suburban office markets commonly use gross and modified gross lease structures, which is worth knowing since tenants in those markets may be more accustomed to gross than NNN arrangements. As in other markets, most Michigan gross leases include some form of expense stop or base year provision that shifts certain cost increases to the tenant.

Question 2

Why are gross leases especially common in Michigan suburban office markets?

Accepted Answer

Michigan's suburban Detroit office market in cities like Southfield, Troy, Farmington Hills, and Ann Arbor developed with a modified gross lease convention for mid-rise office space that has remained common. Tenants in those markets often expect that operating expenses will be substantially covered by the base rent, with only specific items like utilities or janitorial called out separately. Tenants moving from suburban Michigan office to other market types should not assume the same structure applies elsewhere.

Question 3

What is an expense stop in a Michigan gross lease?

Accepted Answer

An expense stop establishes a per-square-foot dollar amount of operating expenses that the landlord agrees to absorb within the base rent. If actual expenses exceed that amount, the tenant pays the difference proportionally. Expense stops are common in Michigan office gross leases and become financially significant as property taxes, insurance, and utilities increase over time. Tenants should request the current actual per-square-foot operating expense figure and compare it to the proposed expense stop before agreeing to the terms.

Question 4

What is a base year mechanism in a Michigan gross lease?

Accepted Answer

A base year gross lease uses the actual operating expenses for a designated calendar year as the landlord's baseline. In future years, if expenses exceed the base year amount, the tenant pays the increase as an additional charge. Selecting the right base year is negotiable and important. A base year in which the building had unusually low occupancy or artificially suppressed expenses will leave the tenant paying more in subsequent years. Tenants should push for a base year that reflects normal, fully occupied building operations.

Question 5

Are audit rights available to Michigan gross lease tenants?

Accepted Answer

Audit rights are not automatically included in Michigan gross leases the way they often appear in NNN leases. Tenants whose lease includes an expense stop or base year pass-through mechanism should negotiate an explicit right to audit the landlord's expense documentation. Without that right, it is difficult to verify that expense allocations are accurate and that ineligible costs have not been included in the operating expense calculation used to calculate any pass-through amount.

Question 6

What is typically excluded from the gross rent in a Michigan commercial lease?

Accepted Answer

Common exclusions from gross rent in Michigan commercial leases include utilities consumed within the tenant's space, janitorial and cleaning services, internet and telecommunications, parking costs, and tenant-specific build-out expenses. Some leases also exclude certain types of capital improvements or extraordinary repairs from the expense stop calculation. Tenants should ask for a complete list of excluded items before finalizing the lease to budget total occupancy costs accurately.

Question 7

How do gross-up provisions work in Michigan office gross leases?

Accepted Answer

A gross-up provision allows the landlord to estimate operating expenses at a higher occupancy level, typically 95 percent, even when the building's actual occupancy is lower. This means tenants may pay expense pass-throughs based on what costs would be at full occupancy rather than what they actually are. Gross-up provisions are common in Michigan multi-tenant office buildings and can result in higher pass-through charges during periods of elevated vacancy. Tenants should confirm the gross-up mechanism before signing any Michigan office gross lease.

Question 8

Should Michigan gross lease tenants consult an attorney before signing?

Accepted Answer

Yes, particularly in any lease above $50,000 in total value. A Michigan commercial real estate attorney familiar with Detroit metro market conventions can identify whether the lease terms, expense stop level, base year selection, and gross-up formula are within market norms or unusually favorable to the landlord. Attorney fees for lease review in Michigan are generally reasonable, and the cost is typically recovered quickly if the attorney negotiates even modest improvements to the expense stop or base year provisions.

Fee / Cost	Amount
Michigan Commercial Attorney (Lease Review)	$250 - $450 per hour; suburban Detroit market lease review typically $1,000 - $3,000
Gross Base Rent (Suburban Michigan Office)	Typically $18 - $35 per square foot annually depending on submarket and building class
Expense Stop Pass-Through Risk	Varies; can add $2 - $8 per square foot annually if operating costs materially exceed the stop amount
Annual Base Rent Escalation	Typically 2 - 3 percent per year; confirm whether escalations also apply to expense stop pass-throughs

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Related Michigan Documents

Net Lease Agreement

Office Space Lease

Commercial Sublease

Lease Termination Letter

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