Guide · Operating expenses

How to do a CAM reconciliation

A step-by-step method for landlords, with a full worked example. Updated July 2026.

Every year you estimate what common area maintenance will cost, you bill your tenants monthly against that estimate, and then at year end you settle up against what you actually spent. That settling up is the reconciliation. Done properly it recovers money you have already laid out. Done loosely, or late, it is where landlords quietly give away thousands a year without ever noticing.

What a reconciliation actually is

You do not know in January what the parking lot will cost to plow in February. So the lease lets you estimate. You take last year's actual costs, add something for inflation, divide by twelve, and bill each tenant their share monthly alongside base rent.

At the end of the year you know the real number. If you spent more than you estimated, you bill the difference. If you spent less, you credit it back. That is the entire concept. Everything else is detail about which costs qualify, how they get divided, and when you have to send the statement.

The detail is where the money is.

Step 1: total what you actually spent

Pull every invoice for the year that touches the common areas. Landscaping and snow removal, parking lot maintenance, common area utilities, janitorial, security, common area repairs, property insurance, the management fee, and property taxes if your lease bundles them into the same charge rather than billing them separately.

Do this from invoices, not from your bank statement. A bank statement will not tell you which repair was to a tenant's demised premises and which was to the shared corridor, and that distinction is exactly what a tenant's auditor will ask about.

Step 2: strip out what you cannot recover

Some of what you spent this year is not an operating expense at all. The usual exclusions:

• Capital expenditures. A new roof or a replacement HVAC unit is a capital item, not a running cost. Most leases let you amortize it over its useful life and recover the annual slice, which is very different from billing the whole thing in one year.
• Costs specific to one tenant. If you repaired the plumbing inside one unit, that is that tenant's problem, not a shared cost.
• Leasing costs. Commissions, tenant improvement allowances, and marketing for vacant space are your cost of doing business.
• Anything your lease expressly carves out. Sophisticated tenants negotiate exclusions. Read what you actually signed rather than what you usually do.

Step 3: gross up the variable costs

This is the step most small landlords skip, and it is expensive to skip.

If your building is 70 percent leased, only 70 percent of your tenants are paying into the pool. But some of your costs scale with occupancy and some do not. Common area utilities and janitorial go up as more space fills. Insurance and landscaping largely do not.

Without a gross-up, you personally absorb the vacancy share of every variable cost. A gross-up clause lets you calculate the variable expenses as though the building were 95 percent occupied, then apply each tenant's actual share to that grossed-up figure. Your tenants pay what they would have paid in a full building, which is what they signed up for, and you are not subsidising them for space you have not leased yet.

It applies only to the variable portion. You never gross up a fixed cost like insurance.

Step 4: add your administrative fee

The administrative fee is what you are paid for doing this work: assembling invoices, running the calculation, producing statements, and defending the number when someone audits it. It is normally a percentage of the recoverable pool, commonly 15 percent, and it is usually calculated on the controllable expenses rather than on taxes and insurance.

Tenants negotiate against it as though it were padding. It is not. It is the fee for administering a service you are providing, and it is legitimate income on the property. Price it into your deals and hold it.

Step 5: apply each tenant's share and settle

Each tenant's pro rata share is their rentable square footage divided by the building's total rentable square footage. A 5,000 square foot tenant in a 20,000 square foot building is 25 percent.

Multiply the final pool by that percentage. Subtract the estimates they already paid during the year. Bill the shortfall or issue the credit, and send a statement that shows the arithmetic.

The whole thing, worked end to end

A 20,000 square foot building, 70 percent leased through the year. One tenant occupies 5,000 square feet, so their share is 25 percent. They paid estimates of $2,600 a month.

The variable costs, utilities and janitorial, total $38,000 and were incurred at 70 percent occupancy. Grossed up to 95 percent, that is $38,000 multiplied by 95 over 70, or $51,571. Swapping the grossed-up figure in for the actual raises the pool from $111,000 to $124,571.

The administrative fee is 15 percent of the pool excluding insurance, so 15 percent of $110,571, which is $16,586. The final pool is $141,157.

Notice what the gross-up did. Without it the pool would have been $111,000 plus a smaller admin fee, and this tenant's share would have landed near $31,000, roughly what they had already paid. The gross-up is the difference between recovering your costs and quietly funding the vacancy yourself.

The deadline that costs you the money

Most leases give the landlord a window to deliver the reconciliation statement, often 90 to 120 days after year end. Some leases say that if you miss it, you waive the right to collect the shortfall for that year.

That clause is enforced. A landlord who reconciles in month eight because the bookkeeping ran late can lose a real five figure recovery on a technicality that had nothing to do with whether the charges were fair. Put the deadline in your calendar the day the lease is signed, and work backward from it.

What tenants push back on

Three objections come up over and over, and all three are answerable if your paperwork is in order.

"This looks like a capital item." Show the amortization schedule. If you are billing a twentieth of a roof, say so on the statement rather than leaving them to guess.

"Why has this jumped so much?" Usually because the prior year was estimated low. Show the two years side by side. A statement with last year's actual next to this year's actual answers most of these before they are asked.

"I want to audit." Let them, on the terms in the lease. A tenant audit is uncomfortable only when your file is disorganised. If every invoice is filed against the line it supports, an audit becomes a formality, and it usually ends the argument permanently.