The Landlord's Complete Guide to CAM Gross-Up Calculations

Vacancy is a revenue problem that creates a second, less obvious math problem. When a building is partially occupied, variable operating expenses -- utilities, janitorial, common area maintenance -- are lower than they would be at full occupancy. But they do not drop proportionally. A building at 75% occupancy does not spend exactly 75% of what it would at full occupancy on cleaning, landscaping, and HVAC. The relationship between occupancy and variable costs is real but imperfect, and without a mechanism to normalize those costs, the tenants who are in the building absorb a disproportionate share.

That mechanism is the gross-up. It is a lease provision, a calculation methodology, and one of the most frequently misunderstood concepts in commercial real estate finance. This guide covers how the calculation actually works, where the errors hide, and how to verify your numbers are correct.

What Is a CAM Gross-Up?

A CAM gross-up is a contractual adjustment that scales variable operating expenses to what they would be at a defined occupancy threshold. The purpose is equitable cost allocation: ensuring that existing tenants are not penalized for vacancies they did not create.

Consider a 200,000 square foot office building at 75% occupancy (150,000 SF leased). The building spends $180,000 annually on janitorial services. At full occupancy, that number would be approximately $240,000. Without a gross-up clause, the $180,000 is divided among the existing tenants based on their pro-rata share. Each tenant pays more per square foot than they would in a fully occupied building -- not because costs are higher, but because fewer tenants share them.

The gross-up clause solves this by normalizing the $180,000 to what janitorial would cost at the lease-specified threshold, say 95% occupancy. The normalized figure becomes the basis for each tenant's pro-rata share calculation, producing a fairer allocation that reflects the building's intended operating cost structure.

The gross-up is not a revenue enhancement tool. It does not let the landlord collect more than actual costs at full occupancy. It bridges the gap between depressed variable expenses during vacancy and the normalized cost each tenant should bear.

The Gross-Up Formula

The calculation itself is straightforward. The difficulty is in correctly classifying which expenses enter the formula and which do not.

Grossed-Up Variable Expenses = Variable Expenses / Actual Occupancy x Target Occupancy
$700,000 / 0.75 x 0.95 = $886,667

$1,150,000 + $886,667 = $2,036,667

One constraint is absolute: the grossed-up variable expense total must never exceed what the building would actually spend at 100% occupancy. If actual occupancy is already at or above the target threshold, the gross-up factor equals 1.0 and no adjustment applies. A factor greater than 1.0 applied when occupancy meets or exceeds the target is a billing error. For a quick way to check your own figures, use the CAM gross-up calculator.

Fixed vs. Variable Expenses: The Critical Bifurcation

Getting the gross-up formula right is easy. Getting the expense classification right is where most errors occur. A single fixed expense miscategorized as variable inflates the grossed-up pool and over-bills every tenant in the building.

The test for classification is practical: does this expense change meaningfully when occupancy changes? Janitorial costs drop when floors go vacant because there is less space to clean. That is variable. Property taxes are assessed on the property itself regardless of how many tenants occupy it. That is fixed.

Some expenses straddle the line. Management fees are typically calculated as a percentage of collected rent, which technically varies with occupancy. But because the fee structure is contractual and does not represent an operating cost that scales with building usage, most leases and most courts treat management fees as fixed for gross-up purposes. The lease should specify the treatment explicitly. When it does not, disputes follow.

For a deeper look at the gross-up clause language itself, including how courts have interpreted ambiguous bifurcation provisions, see the companion guide on gross-up clauses in commercial leases.

Gross-Up Calculation Example

Here is a complete worked example for a 200,000 SF suburban office building.

Building profile:

• Total rentable area: 200,000 SF
• Leased area: 150,000 SF (75% occupancy)
• Gross-up threshold per lease: 95%

Operating expense breakdown:

Fixed expenses total: $1,030,000

Variable expenses total: $700,000

Gross-up calculation:

Grossed-up variable = $700,000 / 0.75 x 0.95 = $886,667
Total adjusted expenses = $1,030,000 + $886,667 = $1,916,667

Per-tenant impact: A tenant occupying 30,000 SF (15% pro-rata share) pays:

• Without gross-up: $1,730,000 x 0.15 = $259,500
• With gross-up: $1,916,667 x 0.15 = $287,500
• Difference: $28,000 annually

That $28,000 difference represents the tenant's fair share of variable costs normalized to 95% occupancy. It is not an overcharge. It is the amount the tenant would pay if the building were 95% occupied and variable costs scaled accordingly. Without the gross-up, the landlord absorbs $186,667 in unrecovered variable expenses caused by vacancy.

Common Gross-Up Thresholds

Different lease types and markets use different occupancy thresholds. The threshold directly affects the dollar amount of the adjustment.

Using our example building ($700,000 variable expenses at 75% occupancy):

The difference between a 90% and 95% threshold on this building is $46,667 annually. Over a ten-year lease with fifteen tenants, the choice of threshold affects hundreds of thousands of dollars in aggregate recovery. The lease must specify the threshold precisely; there is no industry default.

Note that when actual occupancy exceeds the threshold, no gross-up applies. If this building reaches 97% occupancy, a 95% threshold produces a factor of 0.95 / 0.97 = 0.979, which would reduce variable expenses below actual. In practice, the gross-up is capped at a factor of 1.0 when occupancy meets or exceeds the target. The landlord passes through actual expenses, not a deflated figure.

BOMA 2024 and Gross-Up

The Building Owners and Managers Association (BOMA) released updated measurement standards in 2024 that affect gross-up calculations indirectly but materially.

BOMA 2024 changes how buildings measure rentable area by revising the treatment of common areas, amenity spaces, and vertical penetrations. For gross-up purposes, three changes matter.

Rentable area recalculation. If your building adopts BOMA 2024, the total rentable square footage may change. Because occupancy is calculated as leased SF divided by total rentable SF, a change in the denominator changes the occupancy percentage, which changes the gross-up factor. A building that measured 200,000 SF under the prior standard might measure 205,000 SF under BOMA 2024 due to revised common area allocations. At the same 150,000 SF leased, occupancy drops from 75% to 73.17%, producing a higher gross-up factor and a larger adjustment.

Amenity space treatment. BOMA 2024 treats certain amenity spaces differently than prior versions. Fitness centers, conference centers, and tenant lounges may be reclassified in ways that change whether their operating costs are included in the variable expense pool. A fitness center that was previously excluded from CAM might now be allocated across all tenants, adding its utility and maintenance costs to the variable pool subject to gross-up.

Load factor adjustments. Changes to load factors -- the ratio of rentable to usable area -- affect tenant pro-rata shares downstream of the gross-up. Even if the gross-up calculation itself does not change, the per-tenant allocation of grossed-up expenses may shift when pro-rata shares are recalculated under the new measurement standard.

The practical advice: if your building is transitioning to BOMA 2024, recalculate your gross-up using the new rentable area before issuing reconciliation statements. The formula does not change, but the inputs do. Running the old denominator through the current year's reconciliation is a billing error waiting to be caught during a tenant audit.

The 5 Most Common Gross-Up Errors

These are the errors that appear most frequently in tenant audits and CAM reconciliation disputes. Each one produces a dollar impact that compounds across every reconciliation period until corrected.

1. Grossing up fixed expenses. The most expensive and most common error. Property taxes, insurance, and management fees are included in the variable pool and adjusted by the gross-up factor. On a building with $400,000 in fixed expenses incorrectly grossed up at a 1.2667 factor, the overcharge is $106,680 per year. Tenants who audit catch this immediately because it is visible in the expense classification schedule.

2. Using the wrong occupancy measurement. Occupancy can be measured by leased square footage, occupied square footage, or economic occupancy (based on revenue). The lease specifies which method applies. Using occupied SF (tenants physically in the space) instead of leased SF (tenants under signed leases) produces a lower occupancy figure and a higher gross-up factor. For a building with 150,000 SF leased but only 140,000 SF physically occupied, the difference between 75% and 70% occupancy changes the gross-up factor from 1.2667 to 1.3571 and adds $63,000 to the variable expense pool.

3. Applying the gross-up when occupancy exceeds the threshold. If the lease specifies a 95% threshold and the building is 97% occupied, no gross-up should apply. The factor would be 0.95 / 0.97 = 0.979, which reduces rather than normalizes expenses. Some accounting systems apply the formula mechanically without checking whether the threshold condition is met, producing a deflated expense pool that under-bills tenants.

4. Failing to gross up the base year. In modified gross leases, tenants pay only the increase above a base year. If the base year falls during low occupancy and is not grossed up, the baseline is artificially low. Every subsequent year's increase is overstated. On a building where the base year was set at 65% occupancy, failing to gross up the base year can inflate the tenant's annual increase by $15,000 to $25,000 per year -- an error that compounds across the full lease term. For a detailed breakdown, see the base year CAM lease guide.

5. Grossing up to the wrong threshold. Using 90% instead of 95% (or vice versa) because the lease language was ambiguous or the accounting team made an assumption. For a building with $500,000 in variable expenses at 70% occupancy, the difference between grossing up to 90% and 95% is $35,714 annually. Over a five-year lease, that is $178,571 in cumulative misallocation -- enough to trigger a formal tenant audit dispute and potential litigation.

How to Verify Your Gross-Up Calculations

Whether you are a landlord preparing a reconciliation statement or a tenant reviewing one, these steps verify the gross-up is calculated correctly.

For an overview of how gross-up fits into the full reconciliation process, including how it interacts with CAM expense caps and tenant pro-rata shares, see what is CAM reconciliation.

Sources

1. BOMA International — BOMA 2024 Office Standard — BOMA
2. Parr Brown — Gross-Up Provisions — Parr Brown
3. BDO — Lease Audit Spotlight: Gross-Up Adjustments — BDO (2020)
4. MBM LLC — CAM Gross-Up Clauses — MBM LLC