A gross-up provision is a lease clause that adjusts variable operating expenses, such as certain CAM costs, to reflect what they would be if a building were fully occupied, preventing partial vacancy from unfairly inflating an individual tenant's pro-rata cost share. This matters primarily in multi-tenant buildings, where some operating costs vary with occupancy level.
Why gross-up provisions matter
Certain operating expenses, like janitorial services or utilities in common areas, vary based on how much of a building is actually occupied. Without a gross-up provision, if a building is only 60% leased, the fixed costs get divided among fewer paying tenants, inflating each tenant's pro-rata share above what it would be at full occupancy. A properly worded gross-up clause normalizes this calculation, protecting tenants in partially vacant buildings from bearing more than their fair proportional share.
What to watch for before committing
Presence of a gross-up clause
Confirm your lease includes a gross-up provision if you're leasing in a multi-tenant building with any vacancy risk.
Which expenses are grossed up
Understand exactly which variable expenses are subject to the gross-up calculation versus which are billed as actual costs.
Gross-up percentage used
Confirm the specific occupancy percentage (often 95-100%) used as the basis for the gross-up calculation.
Calculation transparency and audit rights
Negotiate the right to review how the gross-up calculation was applied to your specific CAM billing.
Fixed vs variable expense distinction
Understand which of your operating expenses are genuinely variable with occupancy versus fixed regardless of building occupancy level.
Relevance to single-tenant buildings
Recognize gross-up provisions are largely irrelevant if you're the sole tenant in a building, since there's no vacancy to distort your cost share.
When you need to know this
- Leasing in a multi-tenant building — protecting against inflated CAM costs during periods of building vacancy
- Negotiating a new lease — ensuring a gross-up provision is included to protect your future cost exposure
- Reviewing CAM reconciliation statements — understanding how gross-up calculations affected your actual billed costs
- Evaluating buildings with known vacancy issues — assessing your cost exposure risk in a partially occupied property
Frequently asked questions
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