Pro-rata shares allocate costs by square footage and are the industry standard. Per-unit allocation splits costs equally regardless of size, which disadvantages smaller tenants.
Pro-rata allocation divides operating expenses among tenants based on their leased square footage relative to the total leasable area. A tenant leasing 5,000 SF in a 50,000 SF building pays 10% of total operating expenses, regardless of how many units exist.
Per-unit allocation divides operating expenses equally among all tenant units, regardless of unit size. Each unit pays the same share of total expenses. A building with 20 units would charge each tenant 5% of operating expenses, whether they occupy 500 SF or 5,000 SF.
| Dimension | Pro-Rata Share Allocation | Per-Unit Allocation |
|---|---|---|
| Allocation basis | Tenant SF / Total leasable SF | Equal share per unit |
| Fairness for different-sized tenants | Fair, proportional to space | Unfair, small tenants subsidize large ones |
| Calculation complexity | Requires accurate SF measurements | Simple division by unit count |
| Industry prevalence | Standard in commercial leases | Rare, mostly small multi-tenant properties |
| Dispute potential | SF measurement disagreements | Size equity disagreements |
Pro-rata share calculations are one of the most error-prone areas in CAM reconciliations. Common errors include using the wrong denominator (occupied SF vs. total leasable SF), failing to update the ratio when the building expands, or using a measurement standard that inflates the tenant's square footage. Even small percentage errors compound into significant overcharges over a multi-year lease.
Per-unit allocation is worse for any tenant whose space is smaller than the average unit size, because they subsidize larger tenants. Pro-rata allocation is generally fairer but creates more audit complexity and more places for calculation errors. For most commercial tenants, pro-rata is the standard and the preferred method.
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