Capital expenditures like roof and HVAC replacements should never appear on your CAM bill, but they do, often costing tenants $5,000 to $50,000+ per incident.
A capital expenditure exclusion clause prohibits the landlord from passing the cost of capital improvements (roof replacements, HVAC system replacements, structural work) directly to tenants as operating expenses. Capital costs benefit the landlord's asset value and should be the landlord's responsibility, not an operating expense charged to tenants.
Capital expenditures are often the single largest improper charge found in CAM audits. A new roof or HVAC system costing $200,000+ should not appear on a tenant's operating expense reconciliation. Without a clear exclusion, landlords can pass through massive capital costs, either as lump sums or amortized over time, dramatically inflating CAM charges.
“Operating Expenses shall not include capital expenditures as determined in accordance with generally accepted accounting principles, except for: (a) capital expenditures made primarily to reduce Operating Expenses, in which case such costs shall be amortized over their reasonably expected useful life at an interest rate not to exceed the Prime Rate plus two percent (2%); and (b) capital expenditures required by governmental regulations first enacted after the Commencement Date, similarly amortized. The annual amortization amount included in Operating Expenses shall not exceed the actual savings achieved in the case of cost-saving capital improvements.”
This is illustrative language only. Your actual lease language controls your rights.
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$5,000-$50,000+
Improperly passed-through capital expenditures can range from $5,000 to $50,000+ per tenant depending on the project scope [industry estimate]
Source: Commercial Lease Audit Case Studies (2024)
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