How to Handle Expense Allocations with Confidence (BOMA 2025 Preview)

You may be handling expense allocations for your building’s tenants already—but can you do it confidently and know you’re in the right? A June 30 session at the 2025 BOMA International Conference & Expo, “The Gross-Up Game: Strategies for Accurate Expense Allocation,” presented by Donna Wheeler, associate director for Cushman & Wakefield, will arm attendees with gross-up calculation and application strategies and help you avoid common pitfalls when applying gross-ups.

How Are Gross-Ups Calculated?

Simply put, gross-ups are when the landlord passes on a proportionate share of certain variable operating expenses to tenants at a level that represents those of a stabilized property. The expense categories are things that are directly tied to occupancy—common candidates for grossing up include janitorial services and supplies, utilities, waste removal services, and building management fees—and the gross-up is often based on 95% or 100% occupancy of the building, even if the building has vacancies when a particular tenant signs their lease, Wheeler explained.

There are multiple ways to calculate gross-ups. Many commercial real estate professionals use the simple method, in which you take total expenses for that category multiplied by the gross-up factor in the lease, then divided by the average occupied square footage. However, that is not the method used for all calculations, Wheeler said. A second method assumes that some portion of your utility bill would be incurred even if the building had zero tenants and lets you avoid grossing up the fixed utility costs.

“You can take those bills and determine that no matter what percentage of occupancy you have in the building, you’re going to have to run exterior lights, garage lights, and emergency lighting,” Wheeler explained. “You figure out that percentage of your electricity—30 to 35% is what you’re going to find throughout the market as a fixed cost. Then, you take your annual expense—let’s say it’s $100,000, and $30,000 of that you’re going to have to spend no matter what, so you don’t gross that up. You take the remaining $70,000 and gross that up. You have a fixed component that your building would have to run whether it’s occupied or not.”

Cleaning service gross-ups involve calculation of an adjusted grossed-up occupancy, which is calculated by multiplying the total rentable square footage by the gross-up percentage. This equates to the adjusted occupied square footage. That number is then multiplied by the per square foot contract rate to arrive at the grossed-up amount.

At times, depending on the landlord’s preference, management fees may also be calculated based on lost rents due to vacancy in lieu of the simple method. This method is much more detailed, involving calculation of average vacancy and the annual average rent rate to determine lost rent amounts. That figure is then multiplied by the management fee percentage in the lease to determine the amount of the gross-up adjustment.

In any event, be prepared to justify your calculations to both the landlord and the tenant. It is critical that the proof is found proper application of each method.

Best Practices for Justifying Expenses

In many cases, it will be easy to prove that expenses that qualify for a gross-up will be higher as the occupancy rises. Janitorial costs are typically assessed per square foot, so more tenants mean more janitorial services. Waste removal costs are the same way, as are utilities—more people using resources means more resources are needed. Historical documentation, if you have access to it, can help greatly with this discussion, Wheeler noted.

“Have some type of historical basis so you can show the history if you need to,” Wheeler said. “If it’s not available, you’ll have to start your own moving forward.”

You should also double-check your leases before you even start your Common Area Maintenance (CAM) reconciliations, Wheeler added. “Make sure you have an abstract or an Excel spreadsheet,” she said. “I have what I call a tenant operating expense summary. I list every lease, I take the excerpt from the lease that gives the gross-up percentages, the caps, all the data with what is in their specific CAM pool, and then I’m able to move forward with that. Take it one by one, tenant by tenant, verifying that you’ve got the correct data when you’re entering it.”

Wheeler’s session promises to shed more light on the methods of preparing gross-ups and talking to tenants about them—and, most importantly, to be interactive and fun for attendees. Emerging professionals will benefit, as will long-time CRE managers who were trained on the simple gross-up method.

Still need to register for the 2025 BOMA International Conference & Expo? There’s still time—register today!