Gross-ups adjust expenses for vacancy but are frequently miscalculated. Actual expenses are simpler but can unfairly burden tenants in low-occupancy buildings.
A gross-up provision allows the landlord to adjust variable operating expenses to reflect what they would be if the building were fully occupied (typically 95% occupancy). This prevents existing tenants from subsidizing vacant space by spreading costs across a hypothetical full-occupancy base.
Actual expense pass-throughs bill tenants for their proportionate share of real, incurred operating costs without any occupancy adjustment. The total expense pool equals exactly what the landlord spent, and each tenant's share is calculated from that actual total.
| Dimension | Gross-Up | Actual Expenses |
|---|---|---|
| Expense basis | Adjusted to hypothetical full occupancy | Based on real costs incurred |
| Occupancy impact | Normalizes for vacancy | Occupied tenants absorb vacancy costs |
| Calculation complexity | High, requires identifying variable vs. fixed expenses | Low, straightforward proportionate share |
| Common errors | Grossing up fixed expenses, wrong occupancy figure | None specific to this method |
| Audit focus | Verify which expenses were grossed up and the occupancy rate used | Verify total expense amounts and proportionate share |
Gross-up provisions are one of the most error-prone areas in CAM reconciliations. Landlords frequently gross up expenses that should not be adjusted (like fixed insurance premiums or property taxes), use incorrect occupancy figures, or fail to apply the gross-up at all when occupancy is high. Each of these errors inflates the tenant's share beyond what the lease permits.
Gross-up calculations, when done incorrectly, create larger overcharges than actual expense pass-throughs. A landlord who grosses up fixed expenses to a 95% occupancy standard when the building is 70% occupied can inflate the expense pool by 25% or more. Actual expense pass-throughs are simpler but can still hurt tenants in buildings with high vacancy.
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Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
