Your NNN lease lacks a gross-up provision, meaning operating expenses are calculated based on actual occupancy rather than full building occupancy. When the building is partially vacant, existing tenants end up subsidizing the landlord's share of costs for empty spaces.
By Angel Campa, Founder · Updated March 2026
Flagged when the gross-up percentage is null and the lease structure type contains "NNN."
In a 100,000 RSF building at 70% occupancy, common area costs like HVAC, janitorial, and security remain largely the same whether the building is 70% or 100% occupied. Without a gross-up clause, a tenant leasing 10,000 RSF pays 10% of actual costs. With a gross-up to 95% occupancy, the landlord bears the cost of vacant space. For a building with $500,000 in annual variable operating expenses, the difference between actual (70%) and grossed-up (95%) allocation costs a 10,000 RSF tenant approximately $1,800 per year. Over a 10-year lease in a chronically under-occupied building, this adds up to $18,000 or more in extra charges.
Require a gross-up provision that adjusts variable operating expenses as if the building were 95% occupied. This is the industry standard and ensures tenants do not subsidize vacant space. Specify that the gross-up applies only to variable expenses that fluctuate with occupancy, not to fixed costs like property taxes and insurance. Negotiate that the gross-up floor be at least 90% to prevent landlord abuse of the provision in nearly full buildings.
A gross-up clause adjusts variable operating expenses as if the building were at a specified occupancy level, typically 95%. This prevents existing tenants from paying a disproportionate share of operating costs when the building has vacant space.
The industry standard gross-up level is 95% occupancy. Some landlords push for 100%, which is reasonable for expense calculation purposes. Avoid accepting gross-up levels below 90%, as this provides minimal protection.
No, your pro-rata share of the building remains the same. The gross-up clause adjusts the total expense pool before your share is calculated, ensuring the total pool reflects normalized occupancy rather than actual vacancies.
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