# Frequent question: What does gross up mean in commercial lease?

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## What is a lease gross up?

Many commercial leases, especially office leases, include a provision that allows landlords to “gross up” operating expenses. That is, if the building is not fully occupied, the landlord is empowered to gross up or overstate the expenses as if the building is fully occupied (or nearly full).

## What is a gross up provision in a commercial lease?

Commercial leases will often have a provision in the lease that permits the landlord to “gross up,” or overstate the variable operating expenses of the property to the level of operating expenses that would have been incurred had the building been fully occupied for the year.

## How do I calculate commercial real estate gross up?

Gross-Up Example

The first step is to multiply the variable portion of the expenses (\$850,000 * 66.67%) resulting in a subtotal of \$566,667. Next, the fixed expenses of \$150,000 are added to the subtotal bringing the total expense pool to \$716,667. Now assume the expense reimbursement is has a base amount of \$100,000.

## How does gross up clause work?

Simply stated, the concept of “gross up provision” stipulates that if a building has significant vacancy, the landlord can estimate what the variable operating expense would have been had the building been fully occupied, and charge the tenants their pro-rata share of that cost.

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## What expenses are grossed up?

Correctly drafted, a gross up provision relates only to Operating Expenses that “vary with occupancy”–so called “variable” expenses. Variable expenses are those expenses that will go up or down depending on the number of tenants in the Building, such as utilities, trash removal, management fees and janitorial services.

## Why are expenses grossed up?

A gross-up is an additional amount of money added to a payment to cover the income taxes the recipient will owe on the payment. … For example, a company may agree to pay an executive’s relocation expenses plus a gross-up to offset the expected income taxes that will be owed on the salary payment.

## What is the gross up formula?

Determine total tax rate by adding the federal and state tax percentages. For example, if the federal tax rate is 22% and the State rate is 5%, the total tax rate is 27%. Subtract the total tax percentage from 100 percent to get the net percentage. … Divide desired net by the net tax percentage to get grossed up amount.

## What is a tax gross up clause?

Under a gross-up clause, a payor must pay an additional amount to a payee to ensure that the payee receives and retains the same amount that it would have received had no tax been withheld from, or otherwise due as a result of, the payment. …

## Should management fees be grossed up?

Introduction – Management Fee Gross-up Myth

This is a myth. Unless specifically stated in the lease agreement between the owner and the tenant, per QLoop standards, management fees should not be 100% subject to gross-up, notwithstanding their variability with building occupancy fluctuation.

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## What does gross-up mean real estate?

Stated simply, the concept of “gross up” is that, when calculating a tenant’s share of operating expenses for an office building that is less than fully occupied, the landlord first increases – or “grosses up” – those operating expenses that vary with occupancy (e.g., utilities, janitorial service, etc.) to the amount