Under a NNN lease, you pay CAM in two stages: monthly estimates throughout the year, and an annual reconciliation that settles the difference between what you paid and what the property actually cost to operate. These two numbers rarely match exactly, and how they diverge matters more than most tenants realize.
The estimate is the landlord's projection. The reconciliation is reality, or at least the landlord's version of it. When the reconciliation shows a large balance due, the question is not just "do I owe this?" It is "is this calculation correct?" Tango Analytics found that 40% of CAM reconciliations contain material errors (cited by PredictAP, February 2026). A large balance due is sometimes legitimate; sometimes it reflects expenses that should not be in the pool at all. For a complete explanation of what CAM reconciliation is and how the annual cycle works, see what is CAM reconciliation.
40% of CAM reconciliations contain material errors (Tango Analytics, 2023)
15-20% recovery of billed charges by tenants who audit (Tango Analytics (via PredictAP), 2026)
Key Takeaways
- Monthly CAM estimates are the landlord's advance projections, not verified actuals. The reconciliation is what settles the difference.
- According to Tango Analytics (2023), 40% of CAM reconciliations contain material errors that tenants do not catch because they assume large bills are correct.
- JLL data cited by PredictAP (2026) shows tenants who audit recover an average of 15 to 20% of billed charges.
- A large reconciliation bill is not automatically a legitimate bill. It may reflect misclassified capital expenses, inflated management fees, or incorrect gross-up calculations.
- Paying without reviewing resets your estimate baseline for next year at an inflated level, compounding the overcharge.
What Is a CAM Estimate and How Is It Calculated?
Monthly CAM estimates (also called "estimated additional rent" or "CAM installments") are the landlord's advance collection of operating cost obligations. The landlord sets them at the beginning of each year based on either:
- The prior year's actual costs, adjusted for known changes
- A projection of the new year's expected expenses
Estimates are not an accounting of actual costs. They are a cash flow tool. The landlord uses them to ensure they do not come up short on operating expenses during the year while waiting to reconcile at year-end.
Setting accurate estimates matters for tenants. If the landlord significantly underestimates, you will face a large reconciliation bill in February or March when cash flow may already be stretched. If the landlord overestimates, you have effectively extended an interest-free loan to the landlord until the credit is returned.
Most leases give the landlord discretion to reset estimates each year based on the prior reconciliation. This means a year with higher-than-expected costs raises the baseline for the next year's estimates, even if those higher costs were the result of a one-time event or an improper charge.
The reconciliation: what it calculates
The annual CAM reconciliation compares two numbers:
Total actual CAM expenses for the calendar year, as recorded in the property's general ledger, allocated by tenant pro-rata share.
Total estimated payments collected from the tenant throughout that year.
The difference is either:
- Balance due (actual > estimates): the tenant owes additional funds
- Credit or refund (estimates > actual): the tenant is owed money back
The math is simple. The inputs are not. "Total actual CAM expenses" depends entirely on what the landlord's property management system has coded into the recoverable expense pool, and that is where errors enter.
How errors compound between estimate and reconciliation
The relationship between estimates and reconciliations creates a compounding problem:
Year 1: Landlord sets estimates based on projected costs. Actual costs come in 12% higher due to a resurfacing project, a management fee calculated on the wrong base, and two months of utility charges from a vacant anchor's space improperly included in the common area pool.
Year 1 reconciliation: Tenant receives a reconciliation bill. Some of that 12% overage is legitimate (actual cost increases). Some is improper (the misclassified charges). Tenant pays without auditing.
Year 2 estimates: Landlord resets estimates based on Year 1 actuals, which included the improper charges. The new baseline is inflated. The tenant now pays elevated estimates for an entire second year.
Year 2 reconciliation: If the same improper categorizations continue, the overcharge persists, and the tenant has now been overpaying for two full years.
This compounding is why JLL reported that 28% of tenants who discovered CAM discrepancies did so on their own, but only a small percentage pursued formal professional audits. The ones who do pursue audits recover an average of 15 to 20% of billed charges (Tango Analytics data cited by PredictAP, February 2026). That recovery rate reflects real money: across multi-year leases, a persistent overcharge of $0.50/sqft on a 10,000 sqft space is $5,000/year, or $25,000 to $50,000 over a 5 to 10 year term.
What a large reconciliation bill actually signals
A large balance-due reconciliation is not automatically evidence of fraud or intentional overbilling. Legitimate reasons for a large reconciliation include:
Unexpected cost spikes. Insurance premiums rose sharply in 2022 to 2024. Snow removal costs are difficult to project. A major maintenance issue that was not anticipated when estimates were set.
Prior-year estimates were conservative. Some landlords deliberately set low estimates to keep tenants from complaining about monthly costs. This produces large reconciliation bills but is consistent with what the property actually cost.
Your space grew. If you expanded your leased space mid-year and estimates were not immediately adjusted, the reconciliation trues up that difference.
Illegitimate reasons for a large reconciliation bill include:
Capital expenditures charged as operating expenses. The single most common form of CAM overcharge. A parking lot reconstruction or HVAC system replacement should be depreciated over its useful life, not charged to tenants in a single year.
Management fees calculated on the wrong base. If the lease caps management fees at 4% of gross revenues but the fee is calculated on revenues that include pass-through charges, the 4% applies to a larger number than the lease intends.
Gross-up applied to fixed expenses. Variable expenses can be grossed up to stabilized occupancy. Property taxes, insurance, and landscaping contracts cannot; they do not change with occupancy levels.
Out-of-pool expenses included. Costs associated with re-leasing vacant spaces, tenant improvements, or above-property management fees that do not meet the lease's recoverable expense definition.
The timing risk
The reconciliation creates a timing risk that most tenants do not fully anticipate:
You pay monthly estimates throughout the year. Then in February or March, often during slower post-holiday months for retail businesses, the landlord delivers a reconciliation bill due within 30 days. For a 5,000 sqft space with a $3,000 balance due, that is manageable. For a 25,000 sqft space with a $15,000 to $20,000 balance due, that is a material cash flow event.
Tenants can mitigate this by:
Requesting a preliminary year-end estimate from the landlord in November or December. Some landlords will provide an estimate of what the reconciliation will show, giving tenants time to prepare.
Setting aside a monthly reserve equal to a modest percentage of your CAM estimate to cover likely reconciliation variances. Even a 5 to 10% reserve on monthly estimates helps.
Reviewing the prior year's reconciliation to understand what categories drove the prior-year balance, which may indicate where the new year's reconciliation will land.
Estimate accuracy as a red flag
Some landlords chronically underestimate to keep monthly costs looking attractive to prospective tenants. If your estimates have been significantly below actual costs for two consecutive years, that is a pattern worth noting. It may be how the landlord structures their leasing pitch.
Other landlords overestimate significantly, effectively using the tenant's advance payments as interest-free working capital. If you have received credits for more than 10% of your annual CAM estimate for two consecutive years, request a revised estimate methodology for the next year.
Frequently Asked Questions
Why are my CAM estimates different from my CAM reconciliation every year?
Because estimates are projections and reconciliations are actuals. The landlord projects what the property will cost to operate at the beginning of the year; the reconciliation reflects what it actually cost. The gap can go either direction: larger-than-expected costs produce balance-due reconciliations, lower-than-expected costs produce credits. A consistent pattern in one direction suggests either systematically optimistic or pessimistic estimation.
How long do I have to pay a CAM reconciliation balance?
Most leases specify payment within 30 days of receiving the reconciliation statement. That payment deadline is separate from the audit deadline, which is typically 30 to 180 days after receipt. You can pay the undisputed portion while formally disputing specific charges, the two actions do not need to happen simultaneously.
Can I dispute a CAM reconciliation after paying it?
Generally yes, if you are within the audit window defined in your lease. Paying a reconciliation in full does not automatically waive your right to challenge it later, but some leases contain language that treats full payment without written objection as acceptance. Review your lease's audit and dispute provisions before paying a large reconciliation without first reviewing it.
What should I do if I cannot afford the CAM reconciliation balance?
First, verify you actually owe it, do not assume a large bill is correct without checking. Second, communicate with the landlord early. Most landlords will negotiate a payment plan for a legitimate reconciliation balance rather than start default proceedings. Third, note your audit deadline. If you are in the middle of a review, provide written notice of your intent to audit within the deadline, even if you have not finished the review.
How are CAM estimates reset after the reconciliation?
The landlord typically adjusts your monthly estimate for the new year based on the prior year's actual costs, with adjustments for known changes in the new year. This reset happens with the delivery of the reconciliation or shortly after. If you successfully dispute charges in the prior reconciliation, those disputed amounts should be excluded from the new year's estimate baseline.
Sources
- Tango Analytics, "CAM Reconciliation" (2023). tangoanalytics.com
- PredictAP, "The $15 Billion Problem Hiding in Plain Sight" (2026). blog.predictap.com
- JLL, U.S. Office Outlook (2024). jll.com
For a full explanation of the NNN lease billing structure, see the NNN Lease Tenant Guide. To understand how to review a reconciliation statement line by line, read how to read a CAM reconciliation statement.