Property Tax Overallocation in CAM Statements: What Tenants Can Dispute
Property taxes are treated as an uncontrollable expense in most NNN leases, which means they sit outside the CAM cap and are passed through without limitation on the percentage increase. That makes tax overallocations both harder to catch and more expensive when they occur: tenants cannot rely on a cap to limit the damage. Industrial and warehouse tenants are particularly exposed because their large footprints generate significant absolute dollar exposure even when the per-square-foot rate appears modest. Fitness and gym tenants in mixed-use or retail centers frequently encounter sale-triggered reassessment increases that spike their tax allocation in the first year of a new landlord's ownership.
Tax overallocations take several forms: amounts that exceed what was actually assessed, categories the lease does not include within the definition of "taxes," timing errors that pull amounts outside the lease year into the reconciliation, and refund amounts that should have been credited but were not. None of these require the landlord to act in bad faith. Misconfigured billing systems and imprecise lease drafting produce the same outcome.
Request the actual tax bill for every year in your reconciliation period and compare it to the CAM pool amount. Verify that special assessments, ground rent, and entity-level fees are not included unless your lease explicitly authorizes them.
40% of commercial CAM reconciliations contain material billing errors across all error categories (Tango Analytics, 2023)
The four categories of tax overallocation
1. Amounts exceeding the tax bill
The CAM pool includes $195,000 for property taxes. The actual tax assessment was $180,000. The $15,000 difference has no source. It may be a rounding error, a budget-based allocation that was never adjusted to actuals, or an inclusion of an expired assessment.
The fix is mechanical: compare the reconciliation amount to the actual tax bill for the property. Many landlords make this documentation available on request; others require a formal audit request to produce it.
2. Unauthorized tax categories
Your lease defines "taxes" as real property taxes assessed against the building and land. What landlords sometimes include:
Special assessment district charges. Community facilities districts (CFDs), improvement districts, and special assessment bonds are not always real property taxes. They may be charges levied to fund specific infrastructure or public improvements. Whether they fall within the lease's definition of "taxes" depends on the exact language. If your lease says "real property taxes as levied by the taxing authority," and a special assessment is structured as a separate charge by a different issuing authority, it may be outside the definition.
Ground rent payments. If the landlord leases the land under the building, the ground rent is the landlord's direct obligation. It is not a tax and should not appear in the CAM pool.
Entity-level tax obligations. In Tin Tin Corp. v. Pacific Rim Park, LLC, 170 Cal.App.4th 1220 (Cal. Ct. App. 2009), the court reversed a finding that allowed the landlord to pass through its LLC taxes and fees under the "Real Property Taxes" category in the lease's CAM definition. The court held that the landlord's entity-level taxes were not real property taxes as described in the lease. This case illustrates how broadly written operating expense definitions can still be constrained when a specific category does not match what the lease language actually covers.
3. Timing mismatches
Tax bills are not always aligned with the calendar year. A fiscal year property tax that covers July through June may be split across two calendar-year reconciliations. If the landlord includes the full year's tax in a single reconciliation period rather than correctly apportioning it, tenants in the shorter period overpay.
This also occurs with tax prepayment. Some landlords pay property taxes in advance to qualify for early payment discounts, then include the full discounted or undiscounted amount in the reconciliation period where payment was made, rather than the period the taxes cover.
4. Uncredited tax appeal refunds
When a landlord successfully challenges a property tax assessment and receives a refund from the taxing authority, that refund corresponds to taxes already passed through to tenants during the years covered by the appeal. If the landlord pockets the refund without crediting it back to tenants, those tenants have overpaid.
Most property owners who file appeals win at least a partial reduction. For commercial property at scale, successful appeals are routine. The obligation to credit appeal refunds to tenants exists in most well-drafted leases, but enforcement requires tenants to know the appeal was filed and to ask about the outcome.
15-20% of total CAM billed is recovered on average when tenants conduct a professional audit (Springbord Research, 2022)
State-specific angles
California: Proposition 13 and sale-triggered reassessment
California's Proposition 13 (California Constitution Article XIII A, Section 2) limits assessed value increases to 2% per year between changes in ownership. When a property is sold, the assessed value resets to the purchase price. For commercial properties that sold at a premium, the tax jump can be substantial, and it flows through to tenants immediately as higher CAM charges.
This is a tax pass-through that is contractually allowed under most NNN leases and legally authorized by state law. The dispute question is different: whether the lease caps tax increases, whether the reassessment was calculated correctly, and whether any applicable property tax exemptions or adjustments were applied. In Thrifty Payless, Inc. v. Americana at Brand (Cal. Ct. App. 2013), the tenant challenged its pro-rata shares of property taxes and other CAM items following large post-sale increases, alleging the charges substantially exceeded pre-lease estimates.
Texas: annual appraisal and protest rights
Texas Tax Code Section 23.01(a) requires properties to be appraised at market value as of January 1 each year. Texas Tax Code Section 25.18 requires each appraisal district to implement a reappraisal plan covering all real and personal property at least once every three years. Unlike California's reassessment-at-sale model, Texas uses annual market value appraisals subject to protest, which means year-to-year volatility in assessments and corresponding CAM fluctuation.
For tenants in Texas, tax protest outcomes have a direct CAM impact. If the landlord protests the assessment and succeeds, a refund should credit back to tenants. If the landlord does not protest an inflated assessment, tenants bear the full burden of the over-assessment. Some well-negotiated leases require the landlord to file protests when doing so would be commercially reasonable.
Worked dollar example
The CAM reconciliation shows $195,000 in property taxes. Your pro-rata share is 6%.
You request the tax bills and find:
- Actual property tax assessment: $175,000
- Special improvement district assessment: $14,000 (not within lease's definition of "taxes")
- Prior-year appeal refund received by landlord and not credited: $12,000
Issues identified:
- Authorized taxes: $175,000
- Unauthorized (special assessment): $14,000
- Amount allocated: $195,000
- Excess allocated (over authorized): $195,000 - $175,000 = $20,000
Your share of excess: $20,000 x 6% = $1,200
Plus: uncredited appeal refund from prior year ($12,000): Your share: $12,000 x 6% = $720
Total overcharge: $1,200 + $720 = $1,920 for the year.
How to check your property tax allocation
Pull the tax line items from the reconciliation with descriptions.
Request the actual property tax bills for the reconciliation period. Verify the amounts, the property identification, and the tax year coverage.
Compare the reconciliation amount to the tax bill amount. Flag any excess.
Check whether special assessments or CFD charges are included. Look up the issuing authority: if it is not the county assessor or a standard taxing authority, investigate whether it falls within your lease's definition of "taxes."
Ask whether any tax appeals were filed for the covered period. If a protest was filed and resulted in a refund, verify whether that refund was credited in the reconciliation.
Verify the timing of tax payments in the reconciliation against the period the taxes cover. If a fiscal-year tax is split across two lease years, confirm that only the applicable portion appears in each year.
For the full CAM audit process, see how to audit CAM charges. For recovery once overcharges are confirmed, see CAM recovery.
Related overcharge types: insurance CAM passthrough and utility double-billing CAM both involve similar uncontrollable expense categories that sit outside the CAM cap but still carry significant overcharge risk.
What documentation to request
- The property tax bills for the reconciliation period
- Any tax appeal filings and their outcomes, including refund documentation
- Documentation of any special assessment charges in the pool
- The lease definition of "taxes" and any carve-outs or exclusions
Frequently asked questions
Is a sale-triggered reassessment increase always passed through to tenants?
Under most NNN leases, yes, property taxes are passed through as incurred. If the property was sold and reassessed upward, the higher tax passes through. Whether the lease limits this depends on whether the lease caps tax increases, requires a gross-up, or adjusts for reassessment events. Some well-negotiated leases include provisions addressing sale-triggered reassessment specifically.
What if my lease does not include a tax appeal clause?
If the lease is silent on tax appeals, the landlord has no clear obligation to pursue them. However, many leases include a provision either requiring the landlord to file protests when cost-effective or giving the tenant the right to require a protest. If your lease has such language, enforcing it protects you from paying taxes that could have been reduced.
Can I dispute a tax overallocation after paying for several years?
Yes, within the applicable audit window and statute of limitations. As with other overcharges, the clock runs from when each year's reconciliation was received and paid, or when you could reasonably have discovered the error. Document the issue and raise it in writing promptly once you identify it.
How is the tax allocation affected by vacant space?
If the building is partially vacant and the lease requires the landlord to gross up operating expenses, the gross-up typically does not apply to property taxes because taxes are a fixed cost (they do not vary with occupancy). However, if the vacant space has a separate tax parcel or the lease excludes vacant space from the pool, verify that the full tax bill is not being allocated over fewer tenants without a corresponding reduction in the denominator.
What is the difference between real property taxes and special assessments?
Real property taxes are levied by the county or state taxing authority based on assessed value. Special assessments are charges levied to fund specific improvements: streets, sewers, lighting districts, or improvement zones, and may be administered by separate improvement districts. Many leases include special assessments within the definition of taxes; others exclude them. Check your lease's definition and compare it to the nature of the charge.
CAMAudit checks property tax allocations against the lease's definition of recoverable taxes, verifies the timing of tax year coverage, and flags amounts that exceed documented assessments or include categories your lease does not authorize. The system also identifies whether prior-year appeal credits were applied.
Related: Insurance overcharges in CAM statements | Utility double-billing and direct-pay conflicts | Excessive CAM charges | CAM reconciliation explained
Frequently Asked Questions
Can a landlord pass property taxes through CAM charges?
Yes, in most NNN leases property taxes are a pass-through expense. However, the lease controls exactly what is recoverable. Many leases exclude taxes on personal property, income taxes, capital gains taxes, and taxes that would not have been assessed but for a sale of the property. If the reconciliation includes any of these categories, those amounts are disputable.
Are property tax appeal refunds supposed to be credited back to tenants?
Yes, in most well-drafted leases. If a landlord appeals a property tax assessment and receives a refund, the tenant's pro-rata share of that refund should be credited to the tenant's account. Failing to pass through appeal credits is one of the most common tax-related overcharges, and it is rarely caught without a multi-year audit.
How do I verify my property tax allocation is correct?
Request the actual tax bills from the relevant county taxing authority and compare them to what was billed through CAM. Verify that the lease year and tax year align correctly. Confirm that no improvement assessments or special districts were included unless your lease permits them. Check whether any appeal was filed for the year in question and whether a credit was applied.
What is a tax year timing error in CAM reconciliations?
A timing error occurs when the landlord bills tax payments that fall outside the lease year into that year's reconciliation. For example, a January payment for the prior year's final tax installment might be included in the current year's CAM pool. Depending on the accrual or cash-basis treatment specified in your lease, this may be a recoverable overcharge.
Can a sale of the property increase my property tax passthrough?
Yes, and this is a significant risk. A sale triggers a reassessment in many states, particularly California under Proposition 13. If the new assessed value is dramatically higher, property taxes can spike. Some leases cap the tenant's tax exposure to reassessments triggered by a sale. If your lease has such a provision and the property was recently sold, this is worth reviewing.
For real-world examples, see: Broward County tax appeal and CAM recovery, Maricopa County property tax CAM case, Travis County appraisal district CAM audit.