Gross-Up Explained, With the Math

Gross-up is the adjustment that makes CAM recovery independent of how well a landlord is leasing the building. It is widely misunderstood, occasionally misused, and one of the most common findings in a tenant audit.

The problem it solves

Imagine a 148,000 square foot building at 60% occupancy. Janitorial, utilities, and trash removal are all lower than they would be at full occupancy, because fewer tenants are generating that work.

A tenant occupying 12,400 square feet pays its 8.38% share of those depressed costs. That sounds like a benefit — until the building fills up. Now the same tenant pays 8.38% of much higher variable costs, and their CAM charge jumps sharply. Nothing about their own usage changed.

Gross-up removes that volatility by normalizing variable costs to a target occupancy before any share is calculated.

The calculation

grossed up = variable costs x (target occupancy / actual occupancy)

With $168,000 of variable costs, 87% actual occupancy, and a 95% target:

$168,000 x (0.95 / 0.87) = $183,448

The uplift is $15,448. That amount is added to the pool before the administrative fee and before the tenant share.

What gets grossed up

Only genuinely variable costs — those that move with occupancy:

• Janitorial and cleaning
• Utilities in tenant-serving areas
• Trash removal
• Some security and management costs

What does not:

• Property taxes
• Building insurance
• Structural maintenance
• Landscaping and snow removal, generally
• Fixed service contracts

The test is simple: does this cost fall when the building empties? Insurance does not. Janitorial does.

Error one: grossing up the whole pool

The most common mistake is treating the entire expense pool as variable. It overstates the uplift substantially and inflates every tenant charge.

In the example above, grossing up the full $412,800 pool rather than the $168,000 variable portion produces an uplift of about $37,959 instead of $15,448 — nearly $22,500 of overcharge spread across tenants, and an obvious audit finding.

Track the variable portion separately within the pool. If you cannot say what it is, you cannot gross up defensibly.

Error two: inconsistent base year treatment

If the lease has a base year and you gross up the current year, you must gross up the base year too.

Comparing a grossed-up current year against a non-grossed-up base inflates the apparent increase and overcharges the tenant for the entire term. This is a standard audit finding and an expensive one to unwind, because it compounds across every year since the lease began.

Gross-up never goes down

If the building is at or above the target occupancy, no adjustment is made. Gross-up only ever raises costs toward the target — it does not gross down a building that is fuller than the target.

A calculation that reduces costs when occupancy exceeds the target is not gross-up, and no standard lease provides for it.

Where in the order it goes

Gross-up is a pool-level adjustment applied before the administrative fee and before the tenant share:

1. Pool actuals
2. Less exclusions
3. Gross-up
4. Administrative fee
5. Tenant share

Applying it after the share produces a different number and severs the link between the tenant charge and the pool. Try both orderings in the CAM reconciliation calculator and the divergence is immediate.