CAM Landmines: What Every Party Needs to Know Before Signing (or Reconciling)

Common Area Maintenance charges — better known as CAM — are one of the most contested battlegrounds in commercial real estate leasing. On the surface, CAM seems straightforward: tenants pay their share of operating a shared property. In practice, CAM reconciliations are riddled with traps, inconsistencies, and drafting nuances that can result in significant financial exposure on both sides of the ledger if left unexamined. Whether you're a tenant, landlord, asset manager, or lease auditor, understanding the landmines buried in CAM provisions is essential. This post walks through the major pressure points, with examples to make the concepts concrete.

Retail vs. Office: Two Different Animals

The first thing to understand is that CAM in retail leases and CAM in office leases operate on fundamentally different philosophies — and confusing the two is a common and costly mistake.

In retail leases, CAM is typically treated as a pass-through of actual operating expenses. Landlords collect estimates throughout the year, then reconcile against actual costs at year-end. Retail CAM tends to be more expansive, often including parking lot maintenance, landscaping, security, marketing funds, and common area utilities. Retail landlords also tend to have more latitude to include management fees and administrative costs. Shopping center leases, in particular, may include complex exclusions and inclusions that are negotiated tenant by tenant — meaning that what one anchor pays versus what an inline tenant pays can differ dramatically.

Office leases, on the other hand, more commonly use an "operating expenses" framework that combines CAM with taxes and insurance into a single recoverable pool. Office leases also tend to feature more standardized exclusions — capital expenditures, leasing commissions, depreciation — and are frequently subject to grossing-up provisions and expense stops (more on both below). The management of expense pools in office buildings also tends to be more formulaic, with cleaner pro rata share calculations based on rentable square footage.

The practical takeaway: never assume that CAM concepts transfer neatly from one asset class to the other. A retail lease auditor needs a very different checklist than someone reviewing an office reconciliation.

The Base Year Concept

In many office leases, tenants don't pay for all operating expenses — they only pay for increases above a baseline. This is called the base year structure. The landlord establishes a base year (often the first year of the lease term), and the tenant's exposure is limited to the amount by which actual expenses in any subsequent year exceed the base year amount.

This sounds protective, but the base year is one of the most manipulated figures in commercial leasing. A few common issues:

Artificially low base years. If the base year falls during a period of low occupancy, low tax assessments, or deferred maintenance, the base year expense figure will be understated. As the property stabilizes and expenses normalize upward, the tenant's exposure grows faster than it should.

Grossing-up in the base year. If operating expenses in the base year should be grossed up to reflect full occupancy (a common lease provision), but the landlord fails to gross up the base year consistently with how they gross up subsequent years, the tenant pays inflated CAM charges year after year. The base year needs to be treated on an apples-to-apples basis with every year that follows it.

Tax reassessments. Property taxes often spike mid-lease due to a sale or reassessment. If the base year was set before a reassessment, the entire tax increase may land on the tenant — far exceeding what was anticipated at lease signing.

Gross Leases, Modified Gross, and Pass-Through Structures

Not all leases ask tenants to pay CAM as a separate line item. A gross lease bundles all operating costs into a single rent figure, meaning the landlord bears all operating expense risk. These are more commonly seen in license agreements — think EV charging operators, coworking providers, or other occupancy arrangements where the operator takes on a fixed fee structure rather than a traditional net lease.

More common are gross leases with pass-throughs — sometimes called modified gross leases. In this structure, the base rent is quoted on a gross basis, but specific expense categories are carved out and passed directly to the tenant. The most common pass-throughs are insurance, and utilities. What gets passed through and what doesn't is entirely a function of negotiation and lease language. The danger here is ambiguity: a lease that says "tenant pays its pro rata share of operating expenses, excluding costs included in base rent" may be clear to the parties at signing but incomprehensible during a reconciliation dispute three years later.

When reviewing any lease, the first question should always be: is this a net lease, a gross lease, or a gross lease with specified pass-throughs? The answer shapes every other analysis.

Controllable vs. Uncontrollable Expenses

One of the most commonly negotiated CAM protections is a cap on controllable expenses. Controllable expenses are those the landlord has meaningful discretion over — things like janitorial contracts, landscaping, security staffing, and management fees. Uncontrollable expenses, by contrast, are those driven by external forces: real estate taxes, insurance premiums, utilities costs tied to market rates, and snow removal (in many markets) are typical examples.

Caps on controllable expenses are usually expressed as a percentage increase over the prior year — commonly 3% to 5% compounded annually. The concept is that a landlord shouldn't be able to dramatically increase discretionary spending and pass all of it to tenants without limitation.

The landmine here is in the definition. Landlords frequently push to categorize expenses as uncontrollable when they are, in fact, within landlord control — or at least subject to competitive bidding. Management fees, in particular, are often listed as uncontrollable even though the landlord selects the property manager and sets the management agreement terms. Clear lease drafting on both sides benefits everyone: tenants gain predictability, and landlords avoid protracted disputes over categorization at reconciliation time.

Also important: controllable expense caps should be clearly defined as applying to each category of controllable expense independently, not just to the total CAM pool. Without this, overages in one category can be obscured by reductions in another.

Expense Stops and Caps: Cumulative vs. Non-Cumulative

Closely related to controllable expense caps is the concept of an expense stop — a threshold above which the tenant begins paying operating expense increases. This is common in gross or modified gross office leases. Once operating expenses exceed the stop (often set at the base year level), the tenant pays the excess.

Separate from expense stops, some leases include caps on annual CAM increases even in net leases — often as a surrogate for the controllable/uncontrollable distinction in retail deals. These caps can be structured as cumulative or non-cumulative, and the difference is significant.

Non-cumulative cap example: Suppose a tenant's base year CAM is $100,000 and the lease caps annual increases at 5%. In Year 1, actual CAM rises 8% to $108,000. Under a non-cumulative cap, the tenant pays only $105,000 — the 5% cap holds and the landlord absorbs the extra $3,000. In Year 2, actual CAM increases just 2% from the prior year actual, coming in at $110,160. The tenant's cap resets: they pay no more than 5% over what they paid in Year 1, so their ceiling is $110,250. Since actual CAM of $110,160 falls below that ceiling, the tenant pays $110,160. The $3,000 from Year 1 is gone permanently — it never comes back.

Cumulative cap example: Same starting point — $100,000 base year CAM, 5% annual cap. In Year 1, actual CAM is $108,000. The cap holds at $105,000, and the $3,000 excess carries forward. In Year 2, actual CAM increases 2% to $110,160. Under a cumulative structure, the landlord can apply the $3,000 banked from Year 1, meaning the tenant's Year 2 bill could reach $108,000 ($105,000 + $3,000 rollover) — nearly $2,000 more than the non-cumulative tenant pays for the exact same year. Over a five- or ten-year lease with recurring overages, the cumulative structure can quietly eliminate most of the cap's protective value, even though both leases are marketed as having an identical "5% cap."

This distinction is almost never clearly labeled in lease documents.

Pro Rata Share: Why the Denominator Matters as Much as the Numerator

Every tenant's CAM obligation is expressed as a fraction: their rentable square footage divided by some denominator, multiplied by the total recoverable expense pool. The numerator — the tenant's square footage — is usually fixed. The denominator is where disputes live.

In office buildings, the denominator is almost always the total rentable area of the building. This is relatively clean. The complication arises when the lease calls for the denominator to reflect only occupied or leasable space, versus total space. If a building is 70% occupied but the denominator uses total building square footage, the landlord absorbs costs attributable to vacant space. If the denominator is limited to occupied space, the tenant's share grows as vacancy rises — effectively subsidizing the landlord's unleased space.

In retail, the denominator question gets considerably more complex. Shopping centers often sit on large parcels with multiple buildings, outparcels, and anchor-owned boxes. The question of whether the denominator is the entire parcel or just the inline shop space can dramatically shift the tenant's cost burden.

Consider a power center with 400,000 square feet of total GLA, of which 250,000 is occupied by anchor tenants who own their own boxes (ground leases or fee parcels) and contribute to CAM only for specific items. If the inline tenant's lease uses total parcel GLA as the denominator (400,000 SF), their pro rata share looks much smaller than if the denominator is only the landlord-owned inline GLA (150,000 SF). In practice, if the anchor tenants aren't contributing to the same CAM pool, using the larger denominator means the landlord is recovering more than 100% of its CAM expenses from the inline tenants — a direct overcharge.

Lease language should be precise on exactly what square footage comprises the denominator, how anchor tenant contributions are treated, and whether the denominator is subject to adjustment if outparcels or anchors are sold or removed from the CAM pool. Ambiguity here is a reliable source of reconciliation disputes.

Ground Leases, Pad Leases, and Inline Tenants

The treatment of ground lease tenants and pad tenants is one of the most frequently mishandled aspects of CAM in retail shopping centers. A ground lessee typically pays a fixed ground rent and manages their own building; they may contribute to CAM for specific shared infrastructure (parking lots, lighting, signage) but are typically excluded from the broader CAM pool. A pad lease tenant may be more similar to an inline tenant but occupy a standalone structure.

The landmine for inline tenants is when the landlord includes ground lease or pad tenants in the denominator for pro rata share calculations (making the inline tenant's share appear smaller) but then excludes those tenants from the actual CAM contribution pool. The effect: the inline tenant is allocated a smaller percentage of the CAM pool, but the pool itself is not proportionally reduced — so the landlord over-recovers.

Lease language should specifically address how ground and pad tenants are treated, whether separately metered utilities are excluded from the CAM pool for those tenants, and whether their square footage counts toward the denominator only to the extent they actually contribute to the relevant expense category.

Audit Rights: Use Them or Lose Them

Most commercial leases include audit rights — the tenant's contractual right to inspect the landlord's books and records to verify CAM charges. These provisions are often buried in boilerplate and go unexercised, but they are among the most important mechanisms for ensuring accuracy and accountability in the reconciliation process.

Key audit right provisions worth understanding clearly:

Audit window. Most leases give tenants 12 months from receipt of the annual reconciliation to dispute or audit charges. Some leases shorten this to 90 or 180 days. Once the window closes, the reconciliation is typically deemed accepted — even if it contains material errors. Both parties benefit from clearly defined, reasonable windows that create finality without foreclosing legitimate disputes.

Qualified auditor requirements. Some landlords require that audits be conducted only by CPAs, or prohibit contingency-fee auditors. These restrictions can limit the practical ability to conduct audits, particularly for smaller tenants. From the landlord's perspective, reasonable qualification standards help ensure audits are professional and focused. Finding the right balance in the lease language avoids friction later.

Confidentiality. Landlords often require that audit findings be kept confidential — preventing tenants from sharing results with co-tenants or other parties. This is a reasonable landlord protection, though tenants should understand its implications before agreeing.

Audit location. Many leases require audits to be conducted at the landlord's offices. Specifying that records may be delivered electronically or reviewed remotely reduces cost and friction for both sides.

Data Retention: The Prerequisite for Any Audit

An audit right is worthless without access to supporting documentation. Data retention obligations — the landlord's duty to maintain and produce records supporting CAM charges — are an under appreciated but critical lease provision.

Standard commercial leases often say nothing specific about record retention. A landlord whose property management software purged data on a standard three-year cycle may be practically unable to support an audit for those periods — even if the tenant's audit window is technically still open. This creates risk for both parties: tenants can't verify charges, and landlords can't defend them.

Explicit lease language on data retention — requiring the landlord to maintain all CAM-supporting documentation for a defined period — protects everyone. Invoices, contracts, payroll records, management fee calculations, tax bills, and insurance policies should be retained for a minimum period that exceeds the audit window. Five years is a reasonable standard, consistent with common statute of limitations periods for contract disputes.

Digital records retention is increasingly relevant. As property management moves to cloud-based platforms, both parties should confirm that lease abstracts, expense allocations, and management agreements are maintained in a retrievable, auditable format — and that the lease specifies the form in which records must be produced.

Conclusion: CAM Is a System, Not a Line Item

The landmines in CAM are rarely explosive on their own. It's the combination — a base year set during a low-occupancy period, paired with a cumulative cap on controllable expenses, a denominator that excludes anchor contributions, and an audit window that expires before anyone acts — that creates real exposure. CAM provisions need to be read as a system, not as individual clauses.

For tenants, the time to understand CAM obligations is before lease signing, not during a reconciliation dispute. For landlords and asset managers, well-drafted CAM language and clean record-keeping reduce disputes, protect recovery rights, and make audits faster and less contentious. For auditors working either side of the table, understanding the interplay of these provisions is the foundation of any credible reconciliation review.

CAM disputes are almost always a symptom of ambiguous lease language or inconsistent administration. Getting the language right — and administering it consistently — benefits everyone involved.