Capital expenses are long-term property investments that should not appear on your CAM reconciliation. Operating expenses are recurring costs that landlords can pass through.
Capital expenses are large, long-term investments in the property that extend its useful life or add value: roof replacements, HVAC system overhauls, parking lot repaving, or structural repairs. Under most lease terms, CapEx should not be passed through to tenants as operating expenses.
Operating expenses are the recurring, day-to-day costs of running the building: maintenance, janitorial, landscaping, utilities, management fees, and routine repairs. These are the expenses that most leases allow landlords to pass through to tenants via CAM reconciliation.
| Dimension | Capital Expenses (CapEx) | Operating Expenses (OpEx) |
|---|---|---|
| Nature of cost | One-time, large-scale investments | Recurring, day-to-day costs |
| Pass-through eligibility | Generally excluded from tenant charges | Standard pass-through to tenants |
| Benefit period | Long-term (5-30 years) | Current year |
| Common examples | Roof replacement, HVAC overhaul, elevator modernization | Janitorial, landscaping, utilities, routine repairs |
| Audit flag | Should trigger exclusion from reconciliation | Should be verified against lease definitions |
Capital expense pass-throughs are one of the most significant CAM overcharge categories. A landlord who includes a $200,000 roof replacement in the operating expense reconciliation can add thousands to each tenant's annual bill. Even when CapEx is amortized, the amortization may not be permitted under the lease. Every large or unusual line item on a reconciliation should be checked for CapEx classification.
Improperly passed-through capital expenses create larger individual overcharges than any other category. A single CapEx item can exceed an entire year's worth of operating expense overcharges combined. Tenants should treat any reconciliation line item over $10,000 as a potential CapEx pass-through that requires verification.
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Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
