How does a gross-up work?
Operating costs split into fixed costs, such as insurance and property tax, and variable costs, such as janitorial services and some utilities. When a building is partly empty, variable costs are lower than they would be at full occupancy. A gross-up scales the variable costs up to what they would have been at the occupancy named in the lease.
The grossed-up pool is then shared across tenants in the normal way. Gross-ups matter most in base-year leases, where an artificially low base year would otherwise make later years look like large increases.
See also: CAM reconciliation.
What does a gross-up calculation look like?
Example (illustrative figures). A building is 70% occupied. Variable expenses for the year are $210,000. Grossed up to 95% occupancy: $210,000 ÷ 0.70 × 0.95 = $285,000. Fixed costs are not adjusted.
A tenant with a 10% share would be allocated 10% of the grossed-up variable pool plus 10% of fixed costs, under its lease terms.
Related
Related terms
