Common Area Misclassification: When Tenant-Specific Work Gets Charged to Everyone

A common area expense is a cost associated with maintaining, operating, or improving areas that serve all tenants in the property — lobbies, parking lots, hallways, loading docks, landscaped areas. Work that benefits only one tenant — renovation inside their suite, HVAC serving only their space, above-standard services provided exclusively for their benefit — is not a common area expense regardless of what the property manager's accounting system calls it.

When tenant-specific costs get misclassified as common area expenses and included in the CAM pool, every tenant in the building pays a portion of a cost they received no benefit from. The amount is usually not labeled "work inside Suite 320" — it appears as a generic description that looks like legitimate maintenance, which is why the error requires active review rather than casual inspection.

What counts as a common area

BOMA International's definition of common areas for retail properties is grounded in the ANSI/BOMA Z65.5-2012 standard: common areas are not factored into a tenant's gross leasable area because they are maintained separately and the costs are apportioned among tenants. The concept is space that is shared — corridors, parking, lobbies, restrooms, loading areas — where every tenant has reasonable access and derives benefit.

Tenant-specific space — the leased premises — is explicitly outside this definition. Work performed inside the leased premises, even if the landlord arranges and pays for it, is not a common area cost.

The line gets complicated at the boundary: the landlord's entrance lobby that also serves as a corridor to multiple suites is common area. The entrance lobby renovation done primarily to attract or accommodate one anchor tenant is a tenant-specific benefit dressed as a common area improvement. Courts apply a factual analysis to the actual work and its intended beneficiaries.

How misclassification happens

Vacant suite preparation

When a landlord prepares a vacant suite for a new tenant — painting, flooring, partition work, HVAC adjustments — those costs are tenant improvements. They benefit the incoming tenant and, indirectly, the landlord through higher occupancy and rent. They are not common area costs.

Property management accounting systems sometimes code these as "maintenance" or "common area preparation" at the time of the work because the space is temporarily vacant (and therefore, arguably, not belonging to any tenant). The categorization is wrong — the work is done for the benefit of a specific future tenant, not the common area. ICSC model retail lease forms explicitly exclude from the CAM pool the cost of tenant improvements and the "cost or rental value of vacant space."

Anchor tenant benefits

Renovation work in or adjacent to an anchor tenant's space that primarily benefits the anchor — expanded entrance, dedicated parking, signage improvements — may be classified as common area work because it affects shared areas of the property. But if the work was undertaken to satisfy the anchor's requirements or retain the anchor's tenancy, the benefit is concentrated and the cost arguably belongs to ownership rather than the CAM pool.

Directly metered services billed to the pool

When a service that should be billed directly to a specific tenant — dedicated HVAC, specialized cleaning, exclusive signage maintenance — is instead included in the common area pool, every tenant subsidizes one tenant's benefit. This overlaps with the utility double-billing problem but extends to non-utility services as well.

A restaurant tenant whose kitchen HVAC system is maintained under the building's master HVAC contract, and where that cost flows into the common area pool, is seeing their operational costs subsidized by neighboring tenants who share no benefit from the restaurant's kitchen exhaust.

Sheplers v. Kabuto: a frequently cited precedent

In Sheplers, Inc. v. Kabuto International (Nevada) Corp., 63 F. Supp. 2d 1306 (D. Kan. 1999), the court applied shopping-center lease language that excluded from "Common Area Costs" items associated with leasing activity and tenant-specific costs. The decision is widely referenced in practitioner discussions because it enforced express exclusions against a landlord who characterized the disputed costs as common area in nature — demonstrating that courts look at the actual function of the work, not the label applied to it.

The case is useful not just for its outcome but for the framework it represents: explicit exclusion language in a lease can protect tenants from costs that the landlord characterizes as common area but that a reasonable reading identifies as tenant-specific.

The above-standard services issue

Above-standard services are services provided to a specific tenant at a higher level than what is provided to tenants generally. Examples:

A law firm tenant receives daily cleaning of their conference rooms and reception area in addition to the standard building cleaning schedule
An anchor department store has a dedicated loading dock attendant whose hours exceed what the building's standard security staffing would provide
A medical office tenant has access to a specific parking allocation maintained with more frequent paving repairs than the general lot

When costs for above-standard services are billed as common area maintenance rather than as direct charges to the benefiting tenant, all tenants share a cost that should fall on one.

BOMA's published exclusion language includes "special services and utilities separately chargeable to individual tenants" as a standard exclusion from the common area pool. The concept is a recognized baseline in balanced lease drafting.

Worked dollar example

The year's CAM pool includes the following items:

"Interior renovation — lobby area, Building A": $45,000 (later investigation shows this was a tenant improvement for an incoming anchor, not renovation of the lobby accessible to all tenants)
"HVAC rooftop unit maintenance — restaurant exhaust": $12,000 (the restaurant is separately metered and has dedicated HVAC; this maintenance is specific to their system)
"Enhanced janitorial — executive floor": $8,000 (above-standard cleaning for a premium tenant who negotiated this level of service)

Total tenant-specific costs in pool: $65,000

Your pro-rata share is 5%.

Your share of misclassified costs: $65,000 × 5% = $3,250 for the year.

If these costs appeared consistently over the term, the cumulative overcharge would be proportional to the duration and the pool amounts.

How to identify misclassified expenses

Pull the general ledger with expense descriptions, not just line totals. The general ledger should show enough detail to classify each cost.
Flag any line item describing work in a specific location (suite number, floor, wing) or work explicitly linked to a specific tenant.
Flag any service that sounds above-standard — "enhanced," "dedicated," "premium," or "exclusive" in the description.
Request invoices and work orders for large flagged items. A project summary for $45,000 in "lobby renovation" should describe the scope; if the scope is clearly a tenant improvement, the amount does not belong in the pool.
Review the building's lease execution records for the reconciliation year. If a new lease was signed during the year, flag any renovation work that occurred around that time and investigate whether it was tenant improvement work.

What documentation to request

The CAM general ledger with detailed expense descriptions
Invoices and work orders for any item over $5,000 that has a vague description or appears to be in a specific area
Floor plans or project descriptions for renovation work
A list of new leases executed during the reconciliation year, with the lease commencement date
Above-standard service agreements or side letters for specific tenants

Frequently asked questions

How do I tell if a lobby renovation was for all tenants or one?

Request the project scope. A renovation that repainted walls, replaced carpet, and updated lighting in the main lobby is common area work. A renovation that reconfigured the lobby layout to improve access to a specific anchor tenant's entrance, added branding elements for that tenant, or addressed structural requirements the anchor demanded in its lease is tenant-specific. The purpose and primary beneficiary of the work determine the classification.

What if the landlord commingled tenant improvement work with legitimate maintenance in a single invoice?

The proper response is to request the invoice be broken down by work type. If a contractor's invoice includes both routine maintenance and specific tenant improvement work in a single line, the tenant improvement portion should be separated out. If the landlord cannot or will not break it down, that is a documentation failure that supports disputing the non-maintenance portion.

Is new tenant build-out ever a legitimate CAM expense?

Generally no. ICSC and BOMA model materials both exclude tenant improvement costs from the CAM pool. Some leases include language allowing the landlord to amortize certain building improvements that benefit all tenants (for example, a lobby renovation that genuinely improves the experience for everyone). But work done inside a leased premise, or for the purpose of attracting or retaining a specific tenant, is not recoverable from the CAM pool regardless of how the lease generally defines operating expenses.

What if the above-standard service was provided to all tenants?

If a premium service level was provided uniformly to all tenants, it is common area maintenance — just at a higher standard. The question is whether the cost was incurred for the general benefit of all tenants or for one. Documentation of the service scope and who received it helps establish this.

CamAudit's classification engine analyzes each expense line item in your CAM reconciliation to identify costs that appear to be tenant-specific or above-standard rather than common area in nature. Items flagged for review include large renovation charges, service descriptions that mention specific locations, and costs that don't match common area maintenance patterns.

Upload your CAM statement for a free scan

See also: The CAM Overcharge Detection Playbook — all 12 detection rules explained.