Our startup signed a 5-year office lease. How much could a base year error cost us?

If the base year was not grossed up to 95% occupancy and the building was 70% occupied in Year 1, the effective base year expenses are understated by roughly 25%. Over a 5-year lease at $500,000 in annual operating expenses and a 10% pro-rata share, that single error could cost you $12,500 per year, $62,500 over the lease term.

Can I audit a Full-Service Gross lease or only NNN leases?

FSG leases are fully auditable. The audit focuses on the operating expense escalation calculation: (1) is the base year correctly grossed up; (2) are current year expenses correctly categorized; (3) are excluded expenses (taxes, insurance, capital improvements) kept out of the controllable expense pool; and (4) is the gross-up applied consistently to both years.

Our startup signed a 5-year office lease. How much could a base year error cost us?

If the base year was not grossed up to 95% occupancy and the building was 70% occupied in Year 1, the effective base year expenses are understated by roughly 25%. Over a 5-year lease at $500,000 in annual operating expenses and a 10% pro-rata share, that single error could cost you $12,500 per year, $62,500 over the lease term.

Can I audit a Full-Service Gross lease or only NNN leases?

FSG leases are fully auditable. The audit focuses on the operating expense escalation calculation: (1) is the base year correctly grossed up; (2) are current year expenses correctly categorized; (3) are excluded expenses (taxes, insurance, capital improvements) kept out of the controllable expense pool; and (4) is the gross-up applied consistently to both years.

CAM Audit for Tech Startups

High-density office users in co-working adjacent and Class A office buildings. Full-Service Gross leases with Base Year stops are standard. Tech startups often sign leases without dedicated real estate counsel, creating significant exposure to base year and gross-up errors that compound over multi-year lease terms. Annual CAM exposure for this tenant type ranges up to $20,000–$100,000+. CamAudit runs 12 forensic detection rules specific to your lease structure in under five minutes.

Typical Lease Structure

Full-Service Gross with Base Year Stop

Avg. Locations

1–5

Annual CAM Exposure

$20,000–$100,000+

Lease Structure

Full-Service Gross with Base Year Stop, landlord covers operating expenses up to the base year amount; tenant pays escalations above that amount. Base year is typically the first year of the lease.

CAM Vulnerabilities for Tech Startups

Base year not grossed up, creating a low baseline that produces large Year 2 escalations. After-hours HVAC markup is high and unchallengeable due to ambiguous lease language. Operating expense definitions include above-grade management salaries and reserves that should be excluded.

Most Common Overcharges

1Base year not grossed up to 95%, inflating all future operating expense escalations
2After-hours HVAC billed at marked-up rates without lease-specified calculation method
3Above-grade management salaries included in the operating expense pool
4Capital improvement reserves included in operating expenses
5Operating expense escalation applied to expenses that should be excluded (taxes, insurance in FSG)

Watch For This Trigger

The Year 2 operating expense reconciliation shows a 25–35% jump in escalations above base year, far exceeding the startup's initial CAM budget.

Detect Overcharges in Your Tech Startup Lease

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Precedent & Case Context

Center 48 litigation examined gross-up mechanics in Class A office buildings and confirmed that operating expense escalations based on an un-grossed base year are subject to challenge for the entire remaining lease term, creating significant recovery potential for tenants willing to pursue an audit.

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Related Resources

ResourcesLease Types and CAM Structures ToolsFree CAM Audit Tools ToolsPro-Rata Share Calculator GlossaryCAM Glossary

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.