Gross-Up
An adjustment that raises variable operating expenses to what they would have been at a target occupancy, so tenants in a partly vacant building pay the same share they would in a full one.
Also called: gross-up provision, occupancy adjustment
Gross-up is an adjustment applied to variable operating expenses during a CAM reconciliation. It raises those costs to the level they would have reached at a target occupancy — commonly 95% or 100% — before any tenant’s share is calculated.
Why it exists
Without gross-up, a tenant in a half-empty building would pay a share of costs that are artificially low because fewer tenants are consuming services. That sounds like a benefit until you consider the reverse: their share of fixed costs stays the same, so as the building fills, their total recovery jumps sharply. Gross-up smooths this by making the recovery independent of the landlord’s leasing success.
It protects both sides. The landlord recovers a fair share rather than absorbing the vacancy’s effect on service costs, and the tenant sees a stable, predictable charge from year to year.
What gets grossed up
Only costs that actually vary with occupancy:
- Janitorial and cleaning
- Utilities in tenant-serving areas
- Trash removal
- Some management and security costs
Fixed costs are excluded, because they do not fall when the building empties. Property taxes, building insurance, and structural maintenance cost the same at 60% occupancy as at 95%. Grossing them up would overcharge every tenant.
The calculation
Take the variable portion of the pool, divide by actual occupancy, and multiply by the target:
grossed up = variable costs x (target occupancy / actual occupancy)At $168,000 of variable costs, 87% actual occupancy, and a 95% target, the grossed-up figure is about $183,448 — an uplift of roughly $15,448.
Gross-up only ever raises costs toward the target. A building above the target occupancy is never grossed down.
Where it goes wrong
The two common errors are treating the entire expense pool as variable, which overstates the uplift, and applying gross-up after the tenant’s share rather than before. Gross-up is a pool-level adjustment; moving it downstream changes the result and makes it impossible to tie the number back to the pool.
Try it with your own figures in the CAM reconciliation calculator, or see how CAM reconciliation software retains the occupancy basis on every line.