CAM Gross-Up Adjustment Workflow
Normalizing occupancy so tenants pay a fair share — when done correctly
Gross-up adjusts variable operating expenses to reflect what they would have been at a normalized occupancy level — typically 90–95% — so that tenants in a partially vacant building are not charged disproportionately for costs that scale with occupancy. Gross-up is also the mechanism that prevents a landlord from windfall when occupancy improves. This workflow covers the complete gross-up calculation from expense classification through final verification.
Step-by-Step Process (5 steps)
Separate Variable Expenses from Fixed Expenses
January–February (as part of reconciliation cycle)Classify each expense line item in the recovery pool as variable (scales with occupancy) or fixed (does not change based on occupancy). Standard variable expenses: janitorial, utilities (common area HVAC, electricity, water in some leases), landscaping, security (in many leases), and general maintenance. Standard fixed expenses: property taxes, insurance premiums, management fees (in most leases), and structural repairs. Verify classifications against each tenant's lease — the same expense may be classified differently across leases in the same building.
Common errors at this step:
- • Classifying insurance and property taxes as variable — these are almost universally fixed expenses that should not be grossed up
- • Applying a blanket variable classification to all maintenance expenses when some are fixed (annual contracts) and others are variable (reactive repairs)
- • Not verifying classifications against each tenant's specific lease language when the building has tenants with different gross-up provisions
Calculate Weighted-Average Occupancy for the Year
January–FebruaryCalculate economic weighted-average occupancy: for each period of the year, multiply the occupied RSF by the number of days in that period, then divide by (total leasable RSF × 365). This accounts for tenants who move in or out mid-year. The economic method is standard and preferred over a physical year-end snapshot, which distorts the occupancy figure when the building had significant move-in or move-out activity.
Common errors at this step:
- • Using a single year-end occupancy snapshot when the building had significant mid-year changes — this overstates or understates occupancy for the full year
- • Including storage, parking, and non-leasable space in the denominator — use only leasable building area
- • Calculating occupancy based on tenants in the building rather than economic occupancy (rent-paying tenants) — free-rent periods during which CAM is still owed affect the calculation
Verify the Gross-Up Threshold Against Each Tenant's Lease
January–FebruaryConfirm the gross-up threshold for each tenant from their lease. Common thresholds: 90%, 95%, and full occupancy (100%). The threshold defines the minimum occupancy level that triggers gross-up — if actual occupancy is above the threshold, no gross-up is applied. If actual occupancy falls below the threshold, variable expenses are adjusted upward as if the building were at the threshold level. Apply each tenant's specific threshold — do not use a single building-wide threshold when tenants have different provisions.
Common errors at this step:
- • Using 95% as the threshold for all tenants when some leases specify 90% or 100%
- • Applying gross-up even in years when occupancy exceeded the threshold — gross-up only applies when occupancy is below the trigger
- • Not updating gross-up thresholds after lease renewals that renegotiated the gross-up provision
Apply the Gross-Up Factor to Variable Expenses Only
FebruaryCalculate the gross-up factor: [Threshold Occupancy %] ÷ [Actual Weighted-Average Occupancy %]. Apply this factor to each variable expense line item. The grossed-up variable expense total replaces the actual variable expense total in the recovery pool. Fixed expenses remain unchanged. Verify that the grossed-up pool total is reasonable — a very large gross-up (factor above 1.15) may indicate an error in the occupancy calculation or expense classification.
Common errors at this step:
- • Applying the gross-up factor to the total recovery pool including fixed expenses — this overstates the grossed-up amount and overcharges tenants
- • Using the wrong denominator for the gross-up factor (total building RSF vs. leasable RSF vs. occupied RSF)
- • Applying gross-up to management fees when the lease explicitly excludes them from the gross-up calculation
Reconcile Grossed-Up Pool Total and Verify No Double-Grossing
February–MarchAfter applying gross-up, verify that the total grossed-up pool is consistent across all tenant statements. Common double-grossing error: the ERP grosses up variable expenses at the pool level and then applies gross-up again at the tenant billing level. Each expense should be grossed up exactly once. Also verify that when the recovery pool is split into multiple sub-pools (e.g., office vs. retail), gross-up is applied correctly within each sub-pool and not across pool boundaries.
Common errors at this step:
- • ERP applying gross-up at the recovery pool level and then again at the tenant billing level — double-grossing results in significant overcharges that are difficult to detect without independent verification
- • Grossing up a sub-pool's variable expenses using occupancy data from the entire building instead of just the sub-pool's relevant tenant base
- • Not reconciling the sum of all tenant gross-up adjustments back to a building-level gross-up total to verify internal consistency
Timeline
Gross-up calculation is completed as part of the standard reconciliation cycle: January through March. The occupancy calculation requires January data (year-end occupancy figures), so gross-up cannot be finalized until after the first week of January.
Where CapVeri Fits
CapVeri calculates gross-up independently for each tenant using the threshold and methodology you specify from the lease. CapVeri flags gross-up applied to fixed expenses, verifies that the occupancy method (weighted average vs. snapshot) matches the lease, and checks the grossed-up pool total for double-grossing against ERP output. Every calculation is traceable to its inputs.
Related Resources
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