Question 1

What is a gross-up provision in a commercial lease?

Accepted Answer

A gross-up provision allows the landlord to calculate operating expenses as if the building were fully occupied (typically 95% occupied), even if actual occupancy is lower. This prevents the landlord from absorbing a disproportionate share of fixed and semi-variable expenses when the building is partially vacant. For example: if a building is 60% occupied, certain expenses (security, lobby maintenance, elevator operation) remain the same regardless of occupancy. Without a gross-up, tenants in a base year with low occupancy would benefit from artificially low base year expenses, then face large pass-throughs when occupancy increases.

Question 2

How does a gross-up provision affect tenants?

Accepted Answer

Impact on tenants: the gross-up adjusts variable expenses to full-occupancy levels, so the base year or expense stop reflects a "normal" expense level rather than an artificially low level from vacancy. This means: the base year expenses are higher (reducing future pass-throughs), the tenant pays a more predictable and fair share of expenses, the tenant is protected from dramatic expense increases when occupancy improves, and the gross-up creates consistency between years with different occupancy levels. Tenants should ensure the gross-up applies to variable expenses only (not fixed expenses like property taxes, which do not change with occupancy).

Question 3

What expenses are typically grossed up?

Accepted Answer

Typically grossed up (variable with occupancy): janitorial and cleaning services, utilities (electricity, water, HVAC), management fees (if based on a percentage of rents), elevator maintenance, lobby and common area supplies, and trash removal. Typically not grossed up (fixed regardless of occupancy): property taxes, property insurance, base building maintenance (roof, structure), landscaping, and security (if a fixed contract). Semi-variable expenses (with both fixed and variable components) may be partially grossed up. The lease should specify exactly which expenses are subject to the gross-up provision.

Gross Up Provision

Gross-Up Provision

How It Works

Expenses Grossed Up

Tenant Impact

Related Terms

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