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 for your firm
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.
Correction package 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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This page summarizes public-record documents and CAMAudit output for educational and marketing purposes. It does not imply endorsement by City of Los Angeles, Department of General Services or any third party. Readers should review the underlying lease, statement, and dispute timeline for their own facts.