Gross-up provisions normalize variable costs for occupancy, but applying them to fixed expenses or using wrong occupancy figures creates overcharges worth thousands per year.
A gross-up provision allows the landlord to calculate variable operating expenses as if the building were at a specified occupancy level (typically 95%), even when actual occupancy is lower. This prevents existing tenants from subsidizing the vacant space by paying a disproportionate share of variable costs. The adjustment applies only to expenses that vary with occupancy.
Gross-up provisions can work for or against tenants depending on how they are drafted. A fair gross-up protects tenants in multi-tenant buildings by normalizing variable costs. However, if applied incorrectly, or applied to fixed expenses that do not vary with occupancy, gross-up provisions become a profit center for the landlord. Errors in gross-up calculations are among the most common CAM overcharges.
“If the Building is less than ninety-five percent (95%) occupied during any calendar year, Landlord shall adjust those Operating Expenses that vary with occupancy as though the Building were ninety-five percent (95%) occupied. The gross-up adjustment shall apply only to variable expenses, including but not limited to janitorial services, utilities, and trash removal. Fixed expenses such as property taxes, insurance, and structural maintenance shall be passed through at actual cost without adjustment.”
This is illustrative language only. Your actual lease language controls your rights.
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25-30%
An estimated 25-30% of CAM reconciliations contain gross-up calculation errors [industry estimate]
Source: Lease Audit Industry Analysis (2024)
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