CAM Reconciliation Best Practices for Commercial Properties

Why CAM Reconciliation Matters in Commercial Properties

Common Area Maintenance (CAM) charges are a core feature of many commercial leases. They allow landlords to recover the cost of maintaining shared spaces—parking lots, lobbies, landscaping—from tenants who benefit from them. Done well, CAM billing feels predictable and fair. Done poorly, it becomes a recurring source of tension and, occasionally, disputes.

The annual CAM reconciliation is where expectations and reality meet. It is the process of comparing estimated payments tenants made during the year with the actual costs incurred. Understanding how to structure and present that reconciliation can reduce friction and improve trust with tenants.

Start With the Lease, Not a Generic Formula

No two lease forms are exactly alike. Before you open a spreadsheet, you need to understand what each contract says about CAM. Key points usually include:

• Which expense categories are included in CAM and which are excluded.
• Whether there are caps on certain types of expenses (often "controllable" costs).
• How the landlord's administrative fee is calculated.
• Any gross-up provisions and base-year arrangements.

Creating a short lease abstract for each tenant that summarizes these items makes reconciliation work much more straightforward. It also helps ensure that different members of your team apply the rules consistently.

What Typically Belongs in CAM

While details vary by property and market, CAM commonly includes costs such as:

• Exterior landscaping and grounds maintenance.
• Snow removal and parking lot upkeep.
• Common area utilities and lighting.
• Janitorial services for shared interior spaces.
• Security services covering common areas.
• Property management and administrative fees, within agreed limits.

Items like leasing commissions, marketing of vacant space, income taxes, and major capital improvements are often excluded or treated separately. Where capital projects are involved, leases may allow amortizing certain improvements over time and including only the annual amortization in CAM.

Understanding Gross-Up Provisions

In partially vacant buildings, some operating costs stay relatively fixed regardless of occupancy. Gross-up provisions allow landlords to adjust variable expenses to what they would be at a higher occupancy level (often 95% or 100%) so that tenants pay a fair share without the landlord absorbing an undue portion of costs attributable to vacant space.

For example, if a building is 70% occupied, and certain utility costs are lower than they would be at full occupancy, the lease may permit calculating CAM charges as if the building were 95% occupied for those variable categories.

Applying gross-up correctly requires:

• Identifying which costs are truly variable versus fixed.
• Using a consistent methodology year to year.
• Explaining the approach clearly in reconciliation statements.

Transparent communication here goes a long way toward avoiding suspicion when tenants see adjustments.

Calculating and Presenting the Reconciliation

Once year-end actuals are known, the reconciliation process typically involves:

• Summing eligible CAM expenses for the period, by category.
• Applying any caps, exclusions, or amortization schedules required by leases.
• Allocating total CAM across tenants according to their agreed share of the building (often based on leased square footage).
• Comparing each tenant's share to the estimated CAM they paid during the year.

The resulting statement should show, for each tenant:

• Total CAM charges by category for the building.
• The tenant's percentage share.
• Estimated CAM already paid.
• The balance due from or credit owed to the tenant.

Attaching supporting schedules or invoices for larger or unusual expenses—especially in years with spikes due to weather events or major repairs—helps tenants understand what drove changes.

Documentation and Audit Rights

Many leases grant tenants the right to audit CAM billings within a certain time frame if they have concerns. From the landlord's perspective, that makes well-organized records essential.

Good practices include:

• Maintaining separate general ledger accounts for key CAM categories.
• Scanning and storing invoices and contracts in a consistent, searchable way.
• Keeping notes on allocation decisions where judgment was involved.

When an audit request does occur, having documentation ready reduces disruption and shows that charges were assembled carefully, not improvised.

Using CAM Reconciliation to Build, Not Erode, Trust

CAM is more than a line item. For tenants, it is a visible signal of how the property is managed. When reconciliation statements are clear, consistent, and timely, they reinforce the sense that the landlord is running a professional operation.

Setting expectations early, responding to questions with specifics rather than general statements, and being willing to walk tenants through the math when needed all help keep conversations about CAM focused on facts instead of assumptions. Over time, that can make renewals and expansions smoother for both sides. For more on commercial real estate accounting, see our guide.