If the vacant tenant has a net lease (tenant’s share of expenses is paid in addition to the base rent), and other footage leased in the building is minimal, then billing actual (non-grossed-up) expenses is a short-cut way to make sure the vacant tenant is not paying for services not received. However, if the other tenants in the building are occupying their space and therefore using services, not grossing up will cause the occupying tenants to be underbilled (and the vacant tenant not getting the full value for the cost of services not used). Therefore, just like the modified gross lease above, the most accurate way to handle this and to assure that both the vacant tenants and occupying tenants are all treated fairly, is to gross up the annual expenses and then give vacancy credits to the vacant tenants. If the calculations are done correctly, you should end up with the occupying tenants paying their fair share of the services they received, the vacant tenants not paying for any services they did not receive and the landlord recouping from all the tenants in the aggregate, its actual annual costs incurred to provide the various services.