Calculate grossed-up operating expenses for a commercial lease by scaling variable costs from actual occupancy to a standard occupancy level, then adding fixed costs and any tenant pro rata share.

Costs that change with occupancy (utilities, janitorial, etc.). Required.
Costs that do not vary with occupancy (taxes, insurance). Enter 0 if none.
Current building occupancy. Required and must be greater than 0.
Occupancy level expenses are grossed up to (commonly 95% or 100%).
Tenant’s share of the building’s rentable area.

Related Calculators

Operating Expense Gross Up Formula

GUV = VE * (GU / AO)
TGE = FE + GUV

Where GUV is the grossed-up variable operating expenses, VE is the variable operating expenses actually incurred, GU is the gross-up standard occupancy percentage, AO is the actual occupancy percentage, TGE is the total grossed-up operating expenses, and FE is the fixed operating expenses.

You only gross up the variable portion of operating expenses, because those costs rise and fall with how full the building is. Fixed costs such as property taxes and insurance do not change with occupancy, so you add them back without adjustment. To find a single tenant’s obligation, multiply the total grossed-up expenses by that tenant’s pro rata share of the rentable area.

Typical Gross-Up Standards and Effect

The table below shows how a variable expense of $100,000 grosses up at different actual occupancy levels when the gross-up standard is set to 95%.

Actual OccupancyGross-Up StandardGrossed-Up Variable Expense
50%95%$190,000.00
75%95%$126,666.67
90%95%$105,555.56
95%95%$100,000.00

The lower the actual occupancy, the larger the upward adjustment, since the formula scales the cost to what it would be at the standard occupancy level.

Example

A building has $100,000 in variable operating expenses and $50,000 in fixed operating expenses. Actual occupancy for the year was 75%, and the lease allows grossing up to a 95% standard.

First, gross up the variable expenses: 100,000 * (95 / 75) = $126,666.67. Then add the fixed expenses: 50,000 + 126,666.67 = $176,666.67 total grossed-up operating expenses. If a tenant occupies 10% of the building, that tenant’s share is 176,666.67 * 0.10 = $17,666.67.

FAQ

Why are operating expenses grossed up?
Grossing up protects the landlord from absorbing the per-tenant cost of a partly empty building. It charges each tenant roughly what they would pay if the building were near full, so occupied tenants are not under-billed when occupancy is low.

Which expenses should not be grossed up?
Fixed expenses that do not change with occupancy, such as property taxes, insurance, and many management fees, should not be grossed up. Only variable expenses like utilities, janitorial service, and supplies are adjusted.

What gross-up standard is typical?
Most leases gross up to between 95% and 100% occupancy. The exact figure is negotiable, so check the lease language to confirm the standard that applies to your agreement.