Common area maintenance (CAM) charges are one of the most overlooked but critical parts of commercial leases. For both landlords and tenants, understanding how these charges are reconciled each year is essential. When handled carefully, CAM reconciliation protects net operating income (NOI), builds tenant trust, and reduces the risk of costly disputes. When overlooked, it can create friction between landlords and tenants and erode property performance.
This guide explains CAM charges and reconciliation, how the process works in practice, and insights for both owners and occupiers on how to manage it effectively.
What Are CAM Charges?
CAM charges – common area maintenance charges – are fees that, depending on the lease, tenants pay in addition to base rent that cover expenses for maintaining common areas of a property. In an office park, this could include landscaping, while in a shopping center, it may include parking lot upkeep or security patrols. These fees are generally unavoidable in net lease structures and form an important part of the tenant’s total occupancy cost.
The scope of CAM fees can vary greatly between leases. Landlords often prefer a broader interpretation to shift more risk, while tenants negotiate to narrow the scope and control costs. This tug-of-war makes it crucial to review CAM language carefully during lease negotiations.
Example CAM Expenses
- Landscaping and grounds maintenance
- Janitorial and cleaning services
- Security
- Snow removal
- Utilities serving common areas (lighting, water for irrigation)
- Repairs and maintenance that benefit all tenants (HVAC servicing, roof repairs)
- Administrative and management fees
How CAM Fees Are Calculated
CAM charges are generally calculated on a pro rata basis, with tenants paying according to their share of the building’s total rentable area. For example:
- Tenant leases 1,200 SF in a 20,000 SF property
- Annual CAM costs = $18,000
- Tenant share = 6%
- CAM charges owed = $1,080
CAM charges can be fixed or variable. Variable charges are tied to actual operating costs, while fixed charges are set at a predetermined rate with annual escalations.
Want to learn more about the basics of CAM charges first? Start with this SIG Insider post.
What is CAM Reconciliation?
Unsurprisingly, accuracy is important when it comes to CAM charges; this is where reconciliation comes into play.
CAM reconciliation is the process of comparing estimated and actual maintenance costs to ensure landlords recover expenses and tenants pay their fair share. At the beginning of each lease year, landlords project operating costs for common (shared) areas — lobbies, hallways, parking lots, landscaping, and other services that benefit all tenants. These projected costs are divided among tenants according to their proportionate share of space and are billed monthly, incremental to rent, as CAM charges.
At year-end, the landlord reviews actual costs. If costs came in higher than projected, tenants must pay the difference. If the estimate was too high, tenants may receive a refund or a credit toward future payments. Some leases may allow credits to roll forward instead of issuing a refund.
The principle is balance: landlords are reimbursed for money spent maintaining the property, while tenants avoid subsidizing more than their share of expenses.
CAM Recovery vs. CAM Reconciliation
CAM recovery and CAM reconciliation are related but distinct.
CAM recovery is the landlord’s ability to recover operating expenses from tenants through monthly estimated payments. It provides consistent cash flow and ensures landlords are not fronting all operating costs alone. CAM reconciliation is the year-end accounting process that trues up those recoveries against actual costs.
Both matter processes are important. Recovery is about liquidity, while reconciliation is about accuracy and fairness. For landlords, the ability to recover and reconcile CAM efficiently is a safeguard for NOI. For tenants, the reconciliation process creates transparency and accountability.
How Often is CAM Reconciliation Done?
Most lease provisions require CAM reconciliation on an annual basis; it is typically completed within a set time period after the year-end, anywhere from 60 to 180 days post. This gives landlords time to finalize expense statements and compile supporting invoices and documentation.
Well-managed reconciliations provide tenants with detailed statements that not only show the final costs but also highlight variances between budgeted and actual. This transparency is vital in maintaining trust and reducing tenant pushback.
Example of CAM Reconciliation
Consider this simplified scenario:
Estimated CAM: $5.00/SF/year
Actual CAM: $5.50/SF/year
Tenant space: 10,000 SF
Result: The tenant owes $5,000 in additional charges at reconciliation.
If actual costs had come in lower (for example, $4.80/SF), the tenant would be due a refund or credit. While the math is straightforward, disputes often arise over which expenses are truly “common” and whether they were allocated appropriately.
Lease Types and CAM Responsibility
How CAM fees are assessed depends primarily on lease structure, with the following common distinctions:
- Gross Lease: Typically “all-inclusive,” with the landlord covering nearly all operating costs. Tenants rarely pay CAM fees under a gross lease.
- Double Net (NN) Lease: Tenants contribute toward some CAM costs but not all.
- Triple Net (NNN) Lease: Tenants are responsible for nearly all costs except structural repairs, including their full share of CAM.
Understanding the lease type is essential before projecting NOI or evaluating investment returns.
CAM Caps and Floors
To protect tenants, many leases will include CAM caps that limit annual increases, often at a fixed percentage such as 3–5%. These caps create predictability for tenants and shift some risk back to landlords. Conversely, some leases include CAM floors, requiring tenants to pay a minimum level of CAM regardless of actual costs. This protects landlords from sudden drops in recoveries, ensuring a baseline of expense coverage.
These provisions can significantly affect underwriting assumptions. A lease with aggressive CAM caps may limit expense pass-throughs and pressure NOI, while floors provide landlords with more consistent recoveries.
Best Practices for CAM Reconciliation
When CAM charges are part of the lease structure, organization and planning are key for both tenants and landlords. The following best practices can help make the reconciliation process more efficient.
1. Use Tools and Templates
Tracking CAM effectively requires precision. Many landlords rely on Excel spreadsheets with line-item detail, while larger portfolios use property management software that automates the process. A well-designed system should show estimates versus actuals, recoverable totals, and tenant allocations clearly. There should be no ambiguity.
2. Communicate Clearly with Tenants
At year-end, tenants typically receive a reconciliation letter. A well-crafted letter should break down estimates versus actual costs, show balance due or credit, and provide supporting documentation. Transparency in communication reduces disputes and strengthens relationships.
3. Engage Professional Support When Needed
For complex properties like large shopping centers, mixed-use developments, or portfolios with dozens of tenants, many landlords hire third-party accountants or property management firms. Independent oversight provides credibility and reduces administrative burden, especially when CAM charges get contentious.
Why CAM Reconciliation Matters for Investors
For investors, CAM charges and reconciliations are not just a lease administration detail. They directly impact NOI, tenant satisfaction (and therefore retention), and property valuation. Overly aggressive CAM pass-throughs can deter tenants, while poorly managed reconciliations can create disputes that harm retention. On the other hand, transparent and balanced CAM practices support stable income streams and can strengthen underwriting assumptions for buyers.
Next Steps
CAM reconciliation is more than an accounting exercise. It is a discipline that protects income, reduces disputes, and demonstrates professionalism in lease management. For landlords, it ensures that operational costs are appropriately recovered. For tenants, it assures that they are only paying their fair share. For investors, it creates confidence that the property’s financials are reliable and sustainable.
As operating costs continue to rise across sectors like retail, office, and mixed-use, the ability to manage CAM transparently is becoming a differentiator in tenant retention and property performance. Investors evaluating new opportunities should pay close attention to lease language around CAM, caps, and reconciliation timing as part of their due diligence.
Connect with Sands Investment Group for expert guidance on structuring and evaluating leases
IMPORTANT INFORMATION
Sands Investment Group and its affiliates do not practice law and do not give legal, tax, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
