USA – NEW JERSEY Law and Practice Contributed by: David Freylikhman, Cory Mitchell Gray, David Jensen and Jody Saltzman, Greenberg Traurig LLP
base rent to be paid by the tenant by the percentage rental rate that the landlord expects to receive) with a computation commonly done on an annual basis and with payments to be made on an estimated basis until
Often, these costs are estimated at the start of the year and billed monthly to tenants, but are reconciled when actual costs and expenses are determined. In a ground lease, the tenant is commonly responsible for
actual sales figures are available. 6.6 Determination of New Rent
all maintenance and repair costs. 6.10 Payment of Utilities and Telecommunications
The amount of the increase is usually known at the time of lease execution and is determined by either a fixed dollar amount, a figure based on cost per square foot, or another fair market valuation calculation or formulation such as the Consumer Price Index. 6.7 Payment of VAT No VAT is payable in New Jersey. 6.8 Costs Payable by a Tenant at the Start of a Lease Other than rent payments, diligence costs, legal fees and costs associated with posting a security deposit, the tenant may incur costs associated with obtaining permits for its intended use and any construction or fit-out costs associated with constructing or remod - elling the premises. Typically, with a gross lease, the landlord will provide the tenant with a broom-swept clean empty space in a stated condition and may pro - vide a monetary sum to be used as a “construction allowance” for the tenant’s fit-out. The tenant factors this allowance into its economics and is responsible for any costs exceeding the allowance. Generally, to receive the allowance, the tenant must complete the improvements within a certain time period, deliver lien waivers from all contractors and subcontractors, and obtain all governmental sign-offs for its improvements. 6.9 Payment of Maintenance and Repair In this jurisdiction, the landlord is generally responsi - ble for all maintenance and repair of common areas such as hallways, lobbies, elevators, parking lots and gardens. Leases will specify the services that will be provided by the landlord and will often include sea - sonal services such as landscaping and snow remov - al. The costs are passed to tenants as either operating expenses or common area maintenance, and each tenant pays its pro rata share based on the percent - age set forth in the lease (which may be over a base expense year as well).
The method of payment for telecommunications and utilities will vary based on the property. For electric - ity, the cost to the tenant is usually determined by a direct meter or a submeter. The landlord may also reserve the right to charge a flat rate to the tenant based on a per square foot cost (with an opportu - nity to increase costs to the extent that the landlord’s costs are increased). Charges for water, gas, heat - ing, ventilation and air conditioning (HVAC) will also depend on each property. Most commonly, tenants are all served by a single universal HVAC system during business hours (with the expenses to be built into the base rent and escala - tions) and are typically subject to additional charges for after-hours HVAC service. In some buildings, the HVAC system is designed so that each tenant has their own, with such expenses being charged to the respective tenant. Additionally, tenants may have their own supplemental air conditioning and cooling sys - tems for data and telecommunications rooms, or to provide after-hours service, the expense of which is borne by each tenant. 6.11 Payment of Property Taxes Payment of real estate taxes in commercial leases in New Jersey is generally determined by whether the lease is a net lease or gross lease. In a gross lease, the landlord typically builds the base year taxes into the base rent and then charges tenants a fractional share of increases in real estate taxes above the base year (though some landlords may pass through the tenant’s fractional share of real estate taxes without regard for a base year). In a net lease, the tenant would generally pay 100% of real estate taxes without regard to a base year, often directly to the taxing authority, in which event the tenant would then provide proof of payment to
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