What should variable CAM costs be at 95% occupancy?

A gross-up clause lets the landlord adjust the variable operating expenses, the ones that rise and fall with how much of the building is occupied, to what they would have cost at a stated occupancy, usually 95% or 100%. Janitorial, common-area utilities and trash cost less when half the building is empty, so without the clause the tenants who are there would share an artificially low pool and the landlord would absorb the variable cost of the vacancy. The gross-up restores each tenant's share to what it would be in a full building: in the example above, $60,000 of variable cost at 80% occupancy becomes $71,250 at 95%.

Only variable expenses: costs that would have been higher if more space were occupied. Janitorial, common-area utilities, trash removal, supplies, and cleaning or security contracts billed by use are the usual list. Fixed expenses never get grossed up because they cost the same whether the space is full or empty: property taxes, insurance, landscaping, snow removal, parking-lot upkeep, fixed service contracts and a flat management fee (a fee charged as a percentage of collected rent falls with vacancy, so check whether the lease grosses it up). The lease should list the variable categories. If it only says operating expenses will be grossed up, settle which ones with the tenant before the first reconciliation rather than during a dispute.

Yes, when it only normalizes variable costs. A properly written gross-up never lets the landlord recover more than the variable cost actually incurred. Check it with the numbers: at 80% occupancy the occupied tenants together pay 80% of the $71,250 grossed-up pool, which is $57,000, less than the $60,000 spent, so the landlord still carries $3,000 of the vacancy. Even at a 100% gross-up the recovery equals the actual cost exactly. The clause becomes unfair when fixed costs are grossed up, when the share is based on occupied rather than rentable area (which counts the vacancy twice), or when the gross-up is applied at an occupancy already above the lease's figure.

Whatever the lease says; it is a negotiated term, not a standard. 95% is the most common figure because it accepts that a building is rarely completely full, so a tenant is never charged as if it were. At 100% the landlord recovers every variable dollar and tenants pay slightly more: in the example the tenant's share is $12,750 at 95% and $13,000 at 100%. Some leases use 90%. If the lease gives a figure, use it. If it says "fully occupied" instead, read the definitions section, because "fully occupied" in a lease is often defined as 95%.

In a base-year lease the tenant pays its share of expenses above the base year's total, so the base year and every later year must be grossed up the same way. If the base year was set in a half-empty building and never grossed up, its total is artificially low and the tenant pays increases that are really just the building filling up. If only the base year is grossed up, the tenant pays too little. Gross up both to the same occupancy with the same variable categories, and keep the base-year worksheet with the lease. This calculator grosses up one year; run it once for the base year and once for the current year.

Look in the operating-expense or additional-rent section for wording such as "if the building is less than 95% occupied, variable operating expenses shall be adjusted to reflect 95% occupancy." Four things to pin down: the occupancy percentage; which expenses are treated as variable (a list, a definition, or just "those that vary with occupancy"); the occupancy measure, usually occupied rentable area averaged over the year, but sometimes leased area; and the order of operations with caps, exclusions and any base year. If any of the four is missing, write down how you applied it and keep that note with the reconciliation backup.

The square feet that were actually occupied during the year, averaged if it changed. For a 45,000 sq ft center that was 90% full for six months and 70% full for the other six, the average is 80%, so enter 36,000 sq ft. Use the measure the lease names: most say occupied area, but some count space under a signed lease even before the tenant moves in, and a few use leased area at year end. A tenant that occupies space rent-free still occupies it. If the lease is silent, use the year's average occupied area and keep the month-by-month occupancy with the backup.

It grosses up exactly what you enter as variable and divides the pool by rentable area, the most common denominator. It does not decide which costs are variable, apply caps or exclusions, subtract a base year or expense stop, add an administrative fee, or work through the order the lease applies them in. Many leases gross up before applying a cap, so a grossed-up figure can push a tenant against its cap sooner. Use the CAM cap calculator for that step and the pro-rata share calculator if the lease divides by leased area or leaves out an anchor. The lease controls.