What expenses should be grossed up in a full service gross lease?

Only variable operating expenses, costs that genuinely increase with higher building occupancy, should be grossed up to 95%. Examples include: janitorial services, electricity for common area lighting, water for common area restrooms, trash removal, and elevator maintenance. Fixed costs like property taxes, insurance premiums, and management fees do not vary with occupancy and must NOT be grossed up. Grossing up fixed expenses is one of the most common and costly FSG overcharges.

How is the base year stop calculated in a full service gross lease?

The base year stop is the total actual operating expenses incurred in the base year (usually the first full calendar year of your lease term), typically grossed up to 95% occupancy. In subsequent years, you pay your pro-rata share of actual expenses that exceed this stop. Audit the base year immediately upon lease commencement, landlords sometimes use a concession year or partial-occupancy year as the base, guaranteeing escalation charges even in Year 2.

Can I audit operating expense escalations in a full service gross lease?

Yes. Your lease should grant you audit rights to review the landlord's books and records supporting the escalation calculation. Request a detailed line-item reconciliation showing actual expenses by category. Compare to prior years and request vendor invoices for any line item that increased more than 10% year-over-year. CamAudit's gross-up violation detection rule specifically identifies when fixed expenses have been improperly included in the gross-up calculation.

What expenses should be grossed up in a full service gross lease?

Only variable operating expenses, costs that genuinely increase with higher building occupancy, should be grossed up to 95%. Examples include: janitorial services, electricity for common area lighting, water for common area restrooms, trash removal, and elevator maintenance. Fixed costs like property taxes, insurance premiums, and management fees do not vary with occupancy and must NOT be grossed up. Grossing up fixed expenses is one of the most common and costly FSG overcharges.

How is the base year stop calculated in a full service gross lease?

The base year stop is the total actual operating expenses incurred in the base year (usually the first full calendar year of your lease term), typically grossed up to 95% occupancy. In subsequent years, you pay your pro-rata share of actual expenses that exceed this stop. Audit the base year immediately upon lease commencement, landlords sometimes use a concession year or partial-occupancy year as the base, guaranteeing escalation charges even in Year 2.

Can I audit operating expense escalations in a full service gross lease?

Yes. Your lease should grant you audit rights to review the landlord's books and records supporting the escalation calculation. Request a detailed line-item reconciliation showing actual expenses by category. Compare to prior years and request vendor invoices for any line item that increased more than 10% year-over-year. CamAudit's gross-up violation detection rule specifically identifies when fixed expenses have been improperly included in the gross-up calculation.

Full Service Gross Lease (FSG) CAM Audit Guide

Tenants in Full Service Gross Lease (FSG) structures face specific overcharge risks tied to how expenses are allocated and billed. CamAudit runs 12 forensic detection rules on your reconciliation statement to identify every recoverable dollar.

Formal Definition

A lease structure where the tenant pays a single flat monthly rent that includes all operating expenses, property taxes, insurance, utilities, maintenance, janitorial, and management, for the base year. The landlord absorbs all operating costs up to the base year expense stop. In subsequent years, tenants typically pay their pro-rata share of expense increases above the base year stop.

Expense Pass-Throughs

Base year: landlord covers all operating expenses. Years 2+: tenant pays pro-rata share of expense increases above the base year stop (also called expense escalations or operating expense contributions). Common inclusions in escalations: management fees, janitorial, utilities, maintenance, and insurance.

CAM Calculation & Billing

No monthly CAM estimate. At year-end, landlord calculates actual total operating expenses for the year, compares to the base year stop (typically grossed up to 95% occupancy), and bills each tenant their pro-rata share of the excess. Tenants in multi-story office buildings often see escalation bills ranging from $1–$8/SF depending on market conditions and building age.

Most Common Overcharge

Improper gross-up of fixed expenses. Gross-up provisions are designed to adjust variable expenses (utilities, janitorial) to reflect 95% occupancy. Fixed expenses like property taxes and insurance do not vary with occupancy, grossing them up inflates the base year stop downward and the tenant's escalation exposure upward. This is one of the most technically complex and financially significant overcharge categories.

Common Industries

→Class A and B office (high-rise, suburban)
→Professional services firms
→Financial services
→Technology companies
→Law and accounting firms

Audit Focus

Verify that only variable expenses are grossed up (utilities, janitorial, trash removal). Confirm fixed expenses (taxes, insurance, management fee base) are NOT included in the gross-up calculation. Audit the base year expense total against actual invoices. Check that after-hours HVAC is billed at cost, not at an inflated rate.

Red Flags to Watch

▶Gross-up applied to property taxes or base insurance premium (both are fixed costs)
▶Base year that is artificially low due to construction, major vacancy, or concession period
▶After-hours HVAC billed at a flat rate significantly above the actual utility cost
▶Management fee calculated on grossed-up expenses rather than actual collected rents
▶Expense year and base year using different accounting methodologies

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Related Resources

ResourcesCAM Audit by Tenant Type ToolsFree CAM Audit Tools GlossaryCAM Glossary ToolsPro-Rata Share Calculator

Frequently asked questions

This 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.