Gross up operating expenses for a partly empty building.
When a building is partly empty, costs like trash and janitorial run low while fixed costs don't. A gross-up restates the variable costs as if the building were at the lease's occupancy target, often 95% or 100%, so the occupied space pays a full building's rate. It matters most for base-year leases.
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The gross-up calculator
The lease
Often 95 or 100
Compare this year with the base year
This year's expenses
The base year's expenses
The gross-up, worked out
With the base year as it was, the tenant pays $3,000.00. With the base year grossed up, $83.33.
This year, actual
$180,000.00
$80,000.00 of it varies
This year, grossed up
$180,000.00
At or above the target: no change
Tenant's share, actual
$18,000.00
Tenant's share, grossed up
$18,000.00
The occupied space pays, without gross-up
$171,000.00
The landlord keeps $9,000.00, the empty space's part
The occupied space pays, grossed up
$171,000.00
The landlord keeps $9,000.00
| Base-year lease | Base year as it was | Base year grossed up |
|---|---|---|
| Base year total | $150,000.00 | $179,166.67 |
| This year, grossed up | $180,000.00 | $180,000.00 |
| Increase over the base year | $30,000.00 | $833.33 |
| Tenant pays | $3,000.00 | $83.33 |
How the numbers are worked out.
The formulas
- Grossed-up total
- fixed + variable x (target / occupancy), when occupancy is under the target
- At or above the target
- fixed + variable, unchanged
- Tenant's share
- share x grossed-up total
- Base-year tenant
- share x (this year's grossed-up total minus the base year's total, grossed up when the lease says so)
What it assumes
- Only lines marked as varying with occupancy are grossed up. Fixed lines stay as they are.
- Nothing is grossed up when the occupancy is at or above the target.
- Each line is grossed up and rounded to the cent on its own.
- The occupied space's total assumes every share is area over the building.
Worked example: a base-year lease
A tenant with a 10% share has a 2023 base year. In 2023 the building was 60% occupied, with $50,000 of variable costs and $100,000 of fixed costs. This year it is 95% occupied, with $80,000 variable and $100,000 fixed. The lease grosses up to 95%.
| Base year as it was | Base year grossed up | |
|---|---|---|
| Base year variable | $50,000.00 | $79,166.67 |
| Base year total | $150,000.00 | $179,166.67 |
| This year's total | $180,000.00 | $180,000.00 |
| Increase | $30,000.00 | $833.33 |
| Tenant's 10% | $3,000.00 | $83.33 |
The building filling up from 60% to 95% made variable costs rise, not the cost of running it. Grossing up the base year takes that out of the increase.
General information to help you check the math, not legal, tax or accounting advice. Your lease controls: where it says something different, follow the lease.
Edge cases and common mistakes.
Edge cases
Occupancy above the target
Nothing is grossed up. At 97% occupied with a 95% target, the actual costs stand.
Costs that are partly variable
Split the line: the fixed part (a base contract) and the part that rises with tenants (pickups, usage).
Utilities a tenant pays directly
Leave them out of the pool altogether. They aren't the landlord's cost to share.
A lease that grosses up some pools only
Run the pools separately: gross up the ones the lease names and leave the rest.
One lease grosses up the base year, another doesn't
Figure each lease on its own terms. The same building can produce different increases for different tenants.
Common mistakes
Grossing up fixed costs
Taxes, insurance and flat contracts don't change with occupancy. Grossing them up charges tenants for empty space.
Leaving the base year as it was
A base year with low occupancy has low variable costs, so every later year looks like a big increase. Leases often gross up both years for that reason.
Year-end occupancy instead of the average
Use the average for the year (occupied area times days), not the occupancy on December 31.
Questions
What is a gross-up provision in a commercial lease?
A clause that lets the landlord restate variable operating expenses as if the building were more fully occupied, often to 95% or 100%, so the tenants in a partly empty building pay what they would in a full one.
How do you calculate a 95% gross-up?
Divide the variable costs by the actual average occupancy and multiply by 0.95. At 72.6% occupied, $8,000 of trash becomes $8,000 x 0.95 / 0.726, about $10,468. Fixed costs stay as they are.
Which expenses get grossed up?
The ones that rise and fall with occupancy: trash, janitorial, common utilities, some repairs. The lease may list them.
Should the base year be grossed up?
If the lease says so. When it doesn't and the base year was partly empty, a base-year tenant can end up paying for increases that are only the building filling up.
Does a gross-up make tenants pay for vacant space?
Not for fixed costs. It raises the variable costs to what a fuller building would spend; the landlord still carries the empty space's share of everything else.
Cornerhold does this from your leases and invoices.
Cornerhold applies each lease's gross-up in every reconciliation, shows what it added in each tenant's waterfall, and traces every expense to its invoice. Owner and Owner Plus start with 14 days free, and you can set up your portfolio in about ten minutes.
The buildings, businesses, people and figures in the examples on this page are made up.