ContractsIntermediateArizona Exam

In Arizona, a commercial 'gross-up' provision in a lease means:

AThe landlord may increase the base rent above the agreed CPI cap when documented operating expenses exceed the original budget by more than 5% in any given lease year
BFor variable expenses like utilities, the landlord grosses up actual expenses as if the building were fully occupied, ensuring fixed tenants pay their proportionate share even during vacanciesCorrect
CThe tenant assumes full responsibility for all capital improvements and structural repairs within their leased premises for the entire term of the lease agreement
DThe annual base rent increases by a fixed dollar amount agreed to at lease execution regardless of actual changes in the landlord's operating costs, taxes, or insurance

Why For variable expenses like utilities, the landlord grosses up actual expenses as if the building were fully occupied, ensuring fixed tenants pay their proportionate share even during vacancies Is Correct

Answer B: For variable expenses like utilities, the landlord grosses up actual expenses as if the building were fully occupied, ensuring fixed tenants pay their proportionate share even during vacancies

A gross-up provision allows the landlord to calculate a tenant's proportionate share of variable expenses (like utilities, janitorial) as if the building were 100% occupied, preventing tenants from benefiting from below-market occupancy during lease-up.

Exam Tip: Contracts

Contract questions frequently test the essential elements required for a valid contract. Remember: competent parties, mutual consent, lawful object, and sufficient consideration. Watch for void vs. voidable distinctions.

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