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Don’t get screwed.</text><text x="58" y="258" font-family="Arial,Helvetica,sans-serif" font-size="30" font-weight="600" fill="#6b5b4d">Leases, TI, NNN &amp; buildouts — negotiated in your favor</text><g transform="translate(1010,86)" fill="none" stroke="#C0531F" stroke-width="9" stroke-linejoin="round"><rect x="20" y="40" width="150" height="130"/><line x1="20" y1="40" x2="95" y2="6"/><line x1="170" y1="40" x2="95" y2="6"/><rect x="50" y="80" width="36" height="36"/><rect x="104" y="80" width="36" height="36"/><rect x="74" y="128" width="42" height="42"/></g></svg>

How Do I Avoid Paying for Vacant-Space Costs in CAM?

Direct Answer

When a building sits half-empty, the landlord still has to mow the lawn, light the lobby, and pay the management company — and without the right clause, *you* pick up the tab for space nobody's renting. The money move that stops this cold is a gross-up clause, and the counterintuitive truth is that the gross-up actually *protects the tenant* when written correctly.

Demand that variable operating expenses be grossed up to 95% occupancy (some landlords push 100% — fight for 95%), so the per-tenant math stays stable regardless of vacancy. Here's why it matters: in a building running at 60% occupancy, an *ungrossed* janitorial line of $2.00/sq ft gets divided across fewer paying tenants, spiking your share — but a proper gross-up calculates costs *as if* the building were 95% full and bills you only your true 95%-occupied share.

On 5,000 square feet, a mis-handled vacancy pass-through can cost you $8,000–$15,000 a year during a downturn. The other half of the defense: insist your CAM is calculated on a fixed pro-rata percentage tied to total rentable area, never on "occupied area," and exclude capital expenditures, leasing commissions, tenant-improvement costs for other tenants, and marketing for vacant space — all of which landlords love to smuggle into CAM.

Vacant space is the landlord's risk, not yours. Make the lease say so.

Why Vacancy Costs Land On You Without A Gross-Up

Operating expenses come in two flavors: fixed (property taxes, insurance, the management base) and variable (janitorial, utilities, trash, supplies — costs that scale with how full the building is). The danger is in how the landlord allocates these when the building has empty suites.

Picture a 100,000 sq ft building that's only 60% leased. Variable janitorial runs $200,000 when full. At 60% occupancy, actual janitorial might only be $120,000 — but if the landlord divides that $120,000 across just the 60,000 leased square feet, that's $2.00/sq ft.

Now imagine the building fills to 95%: janitorial jumps to roughly $190,000 spread over 95,000 sq ft, also about $2.00/sq ft. The per-tenant rate *should* be stable. The abuse happens when the landlord bills variable costs against the smaller occupied base during high vacancy, inflating your effective rate, then *also* fails to gross up — so you eat the inefficiency of an empty building.

The gross-up exists precisely to neutralize this. It's not a landlord trick when done right — it's tenant insurance against vacancy swings.

How A Gross-Up Clause Actually Protects You

A gross-up provision says: *variable operating expenses shall be adjusted as if the building were 95% (or 100%) occupied.* This means the landlord calculates what janitorial, utilities, and trash *would* cost at near-full occupancy, then bills each tenant only their fixed pro-rata share of that grossed-up number.

Why this helps you:

• It locks your per-square-foot rate. Your CAM per square foot stays roughly constant whether the building is 60% or 95% full. No vacancy spike.
• It prevents the "shrinking denominator" abuse. Because costs are spread as if the building is 95% occupied, the landlord can't divide real costs across only the paying tenants.
• It keeps the landlord honest in good times too. When the building fills up, you don't suddenly get charged for the *additional* tenants' usage beyond your share.

The fight is over the gross-up percentage. Push for 95%, not 100%. At 100%, the landlord grosses up costs for a fully-occupied scenario that may never happen, slightly overcharging you.

At 95%, you get protection without overpaying. Also insist the gross-up applies only to variable expenses — fixed costs like taxes don't change with occupancy and shouldn't be grossed up at all.

The Exclusions That Keep Vacant-Space Costs Out Entirely

A gross-up handles variable operating costs. But landlords also try to recover the *direct costs of their vacancy* through CAM — and those should be flatly excluded. Get these struck from the operating-expense definition:

• Leasing commissions and broker fees for filling vacant space. That's the landlord's cost of doing business.
• Tenant-improvement allowances and buildout costs for *other* tenants. You're not paying to renovate a competitor's suite.
• Marketing, advertising, and signage to lease vacant space. Pure landlord expense.
• Capital expenditures — roof replacements, HVAC system replacements, structural work — unless amortized over useful life *and* only the portion required by law or that reduces operating costs. Even then, cap the annual amortized amount.
• Costs reimbursed by insurance, warranties, or other tenants. No double recovery.
• The landlord's own corporate overhead, legal fees, and financing costs.

A tenant-rep rule of thumb: if a cost exists *because* space is empty, it's the landlord's problem. The lease's operating-expense definition should be a closed list of permitted costs, not an open-ended "all costs of operating the building."

Fix The Denominator: Total Rentable, Not Occupied

The gross-up protects the numerator (total costs). The denominator — what your costs get divided by — needs its own protection. Insist:

• Your pro-rata share is your rentable SF divided by the building's TOTAL rentable SF, expressed as a fixed percentage in the lease.
• The denominator is never "occupied square footage" or "leased square footage."
• If the building is expanded or reconfigured, your percentage is recalculated transparently, not adjusted at the landlord's discretion.

This pairs with the gross-up: total-rentable denominator plus a 95% gross-up means vacancy genuinely cannot inflate your bill.

Verify It Every Year With An Audit

None of this works if you can't check the math. Pair the gross-up and exclusions with an annual audit right:

• Demand the reconciliation show the gross-up calculation explicitly — the occupancy assumption used and the variable costs adjusted.
• Confirm no excluded items crept into the operating-expense pool.
• Use the error-shift clause: if the audit finds overcharges of 3–5%+, the landlord pays for the audit. CAM audits commonly recover 5–10% of billed amounts, with gross-up errors among the most frequent findings.

BOMA's expense standards give you a benchmark to spot a building billing well above market.

FAQ

Isn't a gross-up clause a landlord trick that costs me more? No — a properly written 95% gross-up protects the tenant. It stabilizes your per-square-foot CAM rate regardless of vacancy, preventing the landlord from spreading real costs across only the paying tenants during high vacancy.

The abuse is *no* gross-up combined with an "occupied area" denominator. Always insist on 95%, not 100%.

What's the single biggest vacant-space cost landlords try to pass through? Leasing commissions and tenant-improvement allowances for *other* tenants' suites. These are the landlord's cost of filling vacancy and should be flatly excluded from CAM, along with marketing to lease empty space and capital expenditures.

Should I accept a 100% gross-up if that's all the landlord offers? 95% is better, but 100% is still far preferable to no gross-up. At 100% you may slightly overpay versus realistic occupancy. Use it as a trade — accept 100% gross-up in exchange for stronger exclusions or a tighter expense cap.

How much can vacancy mishandling cost me? On 5,000 square feet during a downturn, a mis-handled vacancy pass-through can run $8,000–$15,000 a year. Over a multi-year term that's real money, which is why the gross-up plus a total-rentable denominator plus exclusions matter together.

Sources

• CBRE, "Operating Expense Pass-Throughs and the Gross-Up Provision" — occupier guidance.
• JLL, "Tenant Guide to CAM, Gross-Ups, and Vacancy Cost Allocation."
• Cushman & Wakefield, "Lease Audit Findings: Common Operating Expense Errors."
• BOMA International, "Operating Expense Accounting and Building Benchmarks."
• NAIOP, "Commercial Lease Operating Expense Structures and Exclusions."
• The Tenant Advisor / tenant-rep broker commentary on gross-up clauses and excluded costs.