How do you distinguish a capital expenditure from an operating expense?

Capital expenditures replace or materially upgrade an asset (new roof, new HVAC system). Operating expenses maintain existing assets (patch a roof leak, service an existing HVAC unit). Request invoices and ask: did this extend the useful life of the asset or replace it?

Can a landlord include amortized CapEx in CAM?

Only if the lease explicitly allows it. If the lease is silent or excludes CapEx entirely, no amortized CapEx should appear in the CAM pool regardless of the amortization period.

Financial Concepts

Capital Expenditure

Last updated: May 2026

A cost that extends the useful life of a building asset, improves its value, or replaces a major component, such as a new roof, HVAC system, or parking lot repaving. Capital expenditures are typically excluded from CAM in most commercial leases.

Firm impact

CapEx hidden in the CAM pool is one of the most straightforward and highest-dollar overcharge categories. A single roof or HVAC replacement incorrectly expensed in one year can generate a six-figure finding. The documentation standard for the finding is strong: the invoice shows 'replacement' or 'new,' and the lease says CapEx is excluded.

How this gets abused

A landlord replaced the entire HVAC system (,000) and included it in the current year's CAM as a 'repair and maintenance' item. The full ,000 was allocated across all tenants in that year with no amortization and no disclosure that it was a system replacement.

Practitioner note

Request the underlying invoices for any large maintenance line item over $10,000. If an invoice describes replacement, installation, or new equipment, it is likely a capital expenditure. The invoice language is the primary evidence for the finding.