LA City DGS Wilshire Blvd: gross-up violation on fixed costs case study
A public-record office lease case study showing Rule 5 advisory findings on $135,600 in fixed tax and insurance costs that must not be grossed up.
What happened
The LA City DGS lease at Wilshire Blvd provides for gross-up to 95% occupancy. Gross-up should apply only to variable operating expenses, not to property taxes or insurance premiums, which are fixed regardless of occupancy. The 2022 reconciliation included both categories in the gross-up pool. Rule 5 flags both as advisory findings pending confirmation of whether a gross-up adjustment was actually applied.
Findings from the pipeline
Rule 5: Gross-Up Violation
medium confidence
$0
'Property Taxes' is classified as tax (a fixed cost) and should not be grossed up. Fixed costs do not vary with occupancy, so any gross-up factor inflates this charge. Exact overcharge requires manual review.
Math proof
item='Property Taxes', amount=98400.00, classification=tax (fixed cost, must not be grossed up)
Statement references
- Property Taxes
Rule 5: Gross-Up Violation
medium confidence
$0
'Property Insurance Premium' is classified as insurance (a fixed cost) and should not be grossed up. Exact overcharge requires manual review.
Math proof
item='Property Insurance Premium', amount=37200.00, classification=insurance (fixed cost, must not be grossed up)
Statement references
- Property Insurance Premium
Lease evidence
- Gross-up provision: variable operating expenses normalized to 95% occupancy.
- Fixed costs (tax, insurance) explicitly excluded from gross-up under standard CA office lease terms.
Why this matters
Gross-up clauses are designed to protect tenants in partially-occupied buildings from subsidizing vacant space costs. But when landlords apply gross-up to fixed costs (tax, insurance), tenants pay inflated charges on expenses that do not vary with occupancy. This is a common error in automated reconciliation systems that apply a single gross-up factor across all line items.
Dispute letter draft excerpt
Request for Cooperative Review of Certain Line Items. The automated review flagged possible gross-up applied to fixed costs (property taxes, insurance) in the 2022 reconciliation, pending manual confirmation.
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