The spreading of a large capital cost over its useful life, recognizing the expense in installments rather than all at once. In CAM, some leases permit landlords to amortize capital expenditures and pass the annual amortized portion through to tenants.
If a lease allows amortized CapEx in CAM, the annual pass-through equals the total project cost divided by the asset's useful life. The amortization rate, interest (if any), and project scope should be disclosed. Tenants should not pay amortization beyond their remaining lease term.
A landlord amortized a $500,000 parking lot resurfacing over 5 years (unrealistically short useful life). The 25-year useful life should have yielded $79,000/year; the accelerated schedule produced $100,000/year - overcharging tenants $80,000/year.
If your lease allows amortized CapEx, require that the useful life match standard accounting schedules (IRS or GAAP). Request the landlord's amortization schedule for any capital project included in CAM.
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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.
