Property taxes are often the single largest line item on a client's CAM statement. They're also one of the most often misallocated. I built CAMAudit partly because the same tax errors kept showing up when I tested reconciliation samples through the system.
The math looks official. The numbers are large. Most reviewers wave it through.
They shouldn't. This is the deep-dive for the pattern library behind Rule 10. Start with the four-step review in how to review tax and insurance pass-throughs, then come back here when a variance needs a closer look.
How property taxes flow through a lease
In a triple-net lease, the tenant pays a share of the building's property taxes on top of base rent. The county assesses the property and bills the landlord. The landlord pays the bill, then passes the cost to tenants through the annual CAM reconciliation.
The mechanism sounds simple. The county bills, the landlord pays, tenants reimburse their share. But a few things can go wrong between the county's bill and the number on a client's statement.
Common overallocation patterns
Mixed-use buildings: only commercial tenants pay the full bill
This is the pattern that shows up most in CAMAudit's detection results. A landlord owns a building with commercial and residential floors. The tax bill covers the whole structure. But when the landlord runs the CAM allocation, only commercial tenants get billed.
The residential space gets left out of the denominator. The pro-rata share calculation runs against commercial square footage only. The result: commercial tenants cover more of the tax bill than their actual share of the property justifies.
Check what the lease says the denominator is. If it says "total rentable area of the building" or "total leasable area," that includes residential space. If the landlord ran the math on commercial-only footage, the client is subsidizing the residential tenants.
Special assessments the lease excludes
Many leases exclude certain charges from the definition of real estate tax. Special assessments are a common exclusion: local improvement district charges, sidewalk repair levies, infrastructure bond repayments.
These assessments show up on the same property tax bill as the ordinary tax. Landlords sometimes bundle everything into one "Real Estate Taxes" line without separating what's billable from what the lease excludes.
If a client's lease excludes special assessments, that line should be zero. Check what actually got itemized.
Tax appeals: where did the credit go?
This one gets missed constantly. When taxes get assessed above market value, landlords can appeal. Appeals can take 18 to 24 months. During that window, the landlord passes the full assessed amount through to tenants.
When the appeal settles and the county refunds the landlord, tenants who paid the inflated amount are owed a credit on the next reconciliation.
Some landlords handle this correctly. Some don't. The refund quietly stays with the landlord while tenants never see a reconciliation adjustment.
Ask the landlord directly: did you file a tax appeal in the last three years? If yes, where's the corresponding credit on the reconciliation?
The California Proposition 13 problem
California gets its own section because of Proposition 13. It caps annual property tax increases at 2%, but resets the assessment to market value when a property sells.
When a California property sells, the new owner's taxes can jump sharply in the first year. That jump flows through to tenants in the next reconciliation cycle.
The question is whether the lease obligates a tenant to absorb a tax increase caused by the landlord's decision to sell. Most standard leases don't explicitly protect against reassessment-triggered increases, but some limit tax pass-throughs to increases that aren't tied to a change in ownership.
If a client's California building recently sold and their tax bill spiked the following year, that's the place to start. Audit rights let a tenant request documentation supporting the tax amounts, including the assessor's notice.
The lease language that protects a client
A few provisions in the tax section matter most.
- Definition of "Taxes." Does it exclude special assessments, income taxes, inheritance taxes, franchise taxes? The narrower the definition, the less a landlord can fit into that line.
- Tax appeal language. Does the lease require the landlord to credit back any tax refund from an appeal? Good leases spell this out with a specific timeline.
- Denominator definition. Does the lease say whether the pro-rata share denominator is the full building or just the commercial portion? If it says "total rentable area," use that number.
- Change of ownership. Does the lease cap or carve out reassessment-triggered increases?
If a lease is silent on any of these, that silence usually favors the landlord. It doesn't mean the allocation is automatically right. It means the review needs documentation and a manual check of the math.
How CAMAudit Rule 10 flags tax overallocation
When your team routes a client's lease and CAM statement through a partner-led review, Rule 10 checks several things automatically.
It extracts the tax definition from the lease and compares it against the CAM statement's line items. Items the lease excludes get flagged.
It reads the pro-rata share denominator from the lease and checks it against the denominator used in the tax calculation. A mismatch here, especially in mixed-use buildings, surfaces right away.
It also checks year-over-year patterns. A tax increase well above typical local assessment growth gets flagged for manual review. That pattern can point to a recent sale reassessment, or an appeal credit that never made it through.
"Tax overallocation is often the largest single dollar error we flag. The amounts run into five figures a year because the underlying tax bill is so large. A 10% overallocation on a $200,000 annual tax pass-through is $20,000 a year, every year, until someone catches it." - Angel Campa, Founder of CAMAudit
What to do when a variance shows up
Start by pulling the lease and reading the definitions of "Taxes" and "Operating Expenses" carefully. Check the definitions section, not just the CAM exhibit. Exclusions are sometimes buried elsewhere.
Next, request support for the tax amounts. Audit rights may let a client review tax bills, assessor notices, and appeal files.
Then verify the denominator. Ask for the building's full square footage breakdown by use type. If the reconciliation's denominator doesn't match the lease, flag it.
Finally, check the reconciliation year against any recorded property sales. Most counties publish sales data. If the building changed hands, that's when to look for the corresponding tax jump.
If a variance holds up, CAMAudit's dispute letter draft lists the lease sections and the math behind it. It's a draft for your team's review, not legal advice. Have the client's counsel review it before it goes out.
What documentation to request
Be specific. Vague requests get vague answers. Ask for:
- The actual property tax bills. Not a summary, the county-issued bills for each installment paid that year, showing assessed value and the land/improvement breakdown.
- Appeal filings and settlement documentation. The original assessment, the appeal filing, the settlement amount, and the refund received, plus proof it was credited proportionally.
- The building's square footage schedule. Total rentable area, broken out by use type for mixed-use buildings.
- The closing or purchase date, if the building recently changed hands. The date is enough to check for a reassessment jump in the following reconciliation year.
Most landlords produce this documentation when a written request cites the audit-rights clause. Resistance to a specific, written request is itself worth noting in the file.
The statute of limitations clock
Finding a variance isn't the end of the work. States set a statute of limitations of three to ten years on contract disputes, depending on the state. Many leases set a shorter audit window on top of that, often 12 to 24 months from delivery of the statement.
The discovery rule can sometimes extend that window if the error wasn't reasonably discoverable earlier. Don't count on it. The clock starts running the day the reconciliation statement arrives.
Property tax overallocation looks clean on paper because a real tax bill backs it up. The real question isn't whether the tax was real. It's whether the client's share was calculated correctly, and whether every line item matches what the lease actually allows.
That's worth checking before the file closes.