Client's CAM charges look wrong: a CPA's 10-minute triage checklist
Your client calls. Their annual CAM reconciliation arrived and the true-up is $8,400. Last year it was $2,100. They want to know if something is wrong before they write the check.
Here is a structured 10-minute checklist to triage the situation. Work through it in order. If you find a clear issue, stop and document it. If you clear all ten items with no flags, you have reasonable confidence the reconciliation is within the expected range under the lease terms.
You will need two documents: the CAM reconciliation statement and the relevant operating expense provisions from the client's lease.
CAM true-up: The annual adjustment when actual CAM expenses are reconciled against estimated monthly payments collected during the year. A positive true-up means the tenant owes additional money. A negative true-up results in a credit. The accuracy of the true-up depends entirely on whether the operating expense calculation in the reconciliation matches the lease terms.
The 10-item triage checklist
Item 1: Calculate the year-over-year change (2 minutes)
Take the current year's total CAM charges. Divide by last year's total. Subtract 1. Express as a percentage.
If the year-over-year increase is more than 10%, flag it. This doesn't mean it's wrong, but any increase above 10% requires explanation. Building operating costs don't typically jump 10%+ without a specific driver.
Ask: what changed? Was there a major capital project? Did the property manager change? Did the center lose an anchor tenant? Each has a specific CAM implication. If the landlord cannot explain an increase this large, the reconciliation warrants closer review.
Item 2: Check the management fee (2 minutes)
Find the management fee cap in the lease. It is typically in the operating expense or CAM provisions section. The cap is usually stated as a percentage of gross operating expenses or gross revenues.
Look in the reconciliation for any line items labeled "management fee," "property management fee," "admin fee," "administrative fee," or "supervisory fee." Add them all together.
Compare the total to the lease cap.
If the combined total exceeds the cap, you have an overcharge. Calculate the delta on the total operating expense base. That delta, times the operating expense pool, is the annual overcharge amount.
Item 3: Verify the pro-rata denominator (2 minutes)
Your client's lease defines how their pro-rata share is calculated. Find that definition. It will say something like: "Tenant's rentable square footage divided by total rentable area of the building/center."
Ask the client: what is your lease square footage? Divide that by the denominator used in the reconciliation to calculate your client's share percentage. Compare to what the lease says the share should be.
If the reconciliation uses a denominator that is smaller than what the lease definition implies (which would increase your client's share), ask for the rent roll supporting the denominator.
Item 4: Identify the largest line items (1 minute)
Find the three or four largest line items in the reconciliation. If any single item represents more than 15% of total CAM and wasn't there last year, flag it.
Common large items that appear suddenly: parking lot repair or resurfacing, roof repairs, HVAC repair or replacement, major landscaping, and "special assessments." Any of these may be capital projects that require different treatment under the lease.
Item 5: Capital expense check (1 minute)
For each large line item identified in Item 4, ask: is this a recurring operating cost or a one-time capital project?
Parking lot resurfacing, roof replacement, HVAC system replacement, and major structural repairs are capital improvements. Most leases either exclude capital improvements from CAM or require them to be amortized over their useful life rather than expensed fully in the current year.
If a $150,000 parking lot reseal appears as a current-year operating expense and the lease requires amortization over 10 years, the current-year overcharge is $135,000 billed to the entire tenant pool that shouldn't have been.
Item 6: Excluded items scan (1 minute)
Review the lease's CAM exclusion list. Common excluded items include:
- Leasing commissions and marketing costs for vacant space
- Depreciation and amortization (unless specifically included)
- Debt service and mortgage interest
- Executive compensation above property manager level
- Costs covered by insurance proceeds
- Income taxes on the landlord's net income
Scan the reconciliation for any line items that look like they could fall into these categories. "Legal fees recovery," "marketing and leasing," "owner compensation," and "financing costs" are specific red flags.
Item 7: Year-over-year variance by line item (30 seconds)
If the client has last year's reconciliation, do a quick scan: which line items increased the most in dollar terms? The largest increases deserve explanation. If maintenance went from $8,000 to $22,000, that's worth a brief inquiry.
Item 8: Insurance line item check (30 seconds)
Property insurance is a common CAM line item. It should be building insurance (property and liability) for the shared/building infrastructure. It should not include the landlord's directors and officers insurance, life insurance on principals, or insurance products unrelated to the property.
If insurance jumped significantly year over year, ask whether the building experienced a claim or had its policy renewed at a significantly higher premium. Both are possible, but neither is automatically acceptable without documentation.
Item 9: Utility allocation check (30 seconds)
Common area utilities (parking lot lighting, lobby, common corridors) are legitimate CAM expenses. Tenant-specific utilities are not. If the reconciliation includes a large utility line item, confirm it reflects shared-area utilities only and not utility costs that should be billed directly to specific tenants.
Item 10: Audit window deadline check (30 seconds)
Check when the client received the reconciliation. Find the audit rights clause in the lease. Calculate the window expiration.
If less than 90 days remain, escalate immediately regardless of findings. The audit window is a hard deadline. Missing it permanently forfeits the right to contest any charges in that statement.
More on that below: what to do when you find a flag.
"The triage checklist exists because most overcharges are concentrated in a few categories. Management fee violations and capital expense misclassifications account for the majority of what CAMAudit flags. Those two checks alone take about five minutes. The rest of the list catches the next tier." — Angel Campa, Founder of CAMAudit
What to do when you find a flag
If any item on the checklist turns up a potential issue, the next step is documentation, not an immediate dispute.
Document the specific finding. Write down: the lease clause that controls the issue, the amount in the reconciliation, the correct amount under the lease, and the delta.
Estimate the multi-year exposure. If the issue has been present in prior years, calculate the lookback exposure within the audit window.
Determine whether to escalate to a formal audit. A confirmed management fee overcharge with documented math is ready to dispute directly. A situation with multiple unclear line items and an undocumented denominator shift may warrant a formal CAM audit using CAMAudit before initiating the dispute.
Act before the audit window closes. Most leases allow 12-18 months from statement receipt to contest charges. If the window is approaching, prioritize the dispute over perfecting the documentation.
Upload the reconciliation to CAMAudit at CAMAudit for a free scan. The tool flags potential violations based on the lease terms so you have a documented findings report to work from.
Questions CPAs ask about this triage process
Frequently Asked Questions
Do I need the full lease or just certain sections to run this triage?
You need: the operating expense or CAM definition section, the exclusion list, the management fee cap provision, and the audit rights clause. These are typically in the same section of the lease. You do not need to review the full lease for this checklist.
What if the client doesn't have a copy of their lease?
Request it from the landlord. Tenants have the right to a copy of their lease. If the client signed the lease years ago and doesn't have it, ask the landlord's property manager for the current lease and any amendments. This is a standard request.
How do I calculate the management fee overcharge amount?
Find the total operating expense pool (usually stated in the reconciliation). Multiply by the capped percentage. That is the maximum fee. Subtract from the actual fee charged. The difference is the annual overcharge.
Is it worth disputing a small management fee overcharge?
It depends on the multi-year exposure and the client relationship with the landlord. A $600 annual overcharge over a 3-year lookback is $1,800. For a multi-location client with the same issue at multiple sites, small amounts multiply quickly.
What if the landlord says the reconciliation is final and not subject to dispute?
Most commercial leases have an audit rights clause that gives the tenant the contractual right to contest charges within the specified window. The landlord's preference is not the controlling document. The lease clause is.
Sources
- AICPA. Practice guidance for CPAs advising commercial real estate clients. https://www.aicpa.org/
- IREM (Institute of Real Estate Management). Operating expense reconciliation resources. https://www.irem.org/
- Tango Analytics. "CAM Reconciliation: Why tenants should verify the math." https://tangoanalytics.com/blog/cam-reconciliation/
- Springbord. "How CAM audits help tenants control real estate expenses." https://www.springbord.com/blog/how-cam-audits-help-tenants-control-real-estate-expenses/
Use CAMAudit's free scan to run the forensic analysis after this checklist identifies potential issues. Upload the reconciliation at CAMAudit and get a documented findings report before the audit window closes.