Realogic Analytics Blog Additional Rent: Understanding Gross-Up

Following up on the previous post about Caps on Operating Expenses, today's post is all abut the often misunderstood concept called Grossing Up or simply Gross Up. The Gross-Up of operating expenses is a critical mechanism that allows landlords to equitably allocate operating expenses that are variable in nature. Specifically, the operating expenses that vary as a result of occupancy are increased to an amount that have been incurred if a defined level of occupancy were achieved.In a typical gross-up scenario, the level to which a landlord may artificially increase variable expenses due to a gross-up clause is 95% or 100% (also known as full occupancy).While this may seem like an unfair method for the landlord to artificially inflate expenses and overcharge a tenant, the goal of a well drafted gross up clause is to protect both parties from dramatic swings in recoverable operating expenses.