A tenant's lease covered Unit 4 in a retail center on Parcel A. The annual CAM reconciliation allocated real estate taxes of $41,000 across the entire center. A review showed the tax bill included $8,200 attributable to Parcel B (an adjacent parking structure owned by the same landlord) and a $3,100 special assessment for a street improvement district. Neither the Parcel B allocation nor the special assessment was authorized by the lease. CAMAudit flagged $11,300 in potential overcharges.
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10
Rule 10 of 20 · Classification rule
Tax Overallocation: How Landlords Bill Tenants for Properties They Do Not Lease
Real estate taxes are one of the largest CAM line items. Even small errors in parcel allocation or assessment inclusion can result in significant annual overcharges.
If a landlord allocated real estate taxes from parcels outside the leased property or included special assessments the lease does not authorize, the client is paying someone else's tax bill. Mello-Roos bonds and special improvement assessments routinely add $3,000 to $10,000 to CAM statements without explicit lease authority.
What it checks
Tax overallocation occurs when a landlord charges a tenant for real estate taxes that do not correspond to the property parcel or parcels covered by the tenant's lease, or includes tax categories such as special assessments, penalty interest, or improvement bonds that are excluded from pass-through under the lease terms. Commercial leases allow tax pass-throughs only for the specific assessments tied to the leased premises and related common areas, not for other properties in the landlord's portfolio or for assessment types not named in the lease. Special improvement district assessments, Mello-Roos bonds, and supplemental assessments triggered by the landlord's sale of the property each require explicit lease authorization before they can be passed through. CAMAudit's tax overallocation detection rule extracts the property description and parcel information from the lease, compares it to the tax assessments included in the reconciliation, and classifies each tax line item for both parcel accuracy and category compliance.
The logic
Tax Overallocation in 3 passes
- 1
CAMAudit extracts the property description and parcel identification information from the lease and compares it to the tax assessments included in the reconciliation. CAMAudit's tax overallocation detection rule flags tax charges that reference parcel numbers or property addresses beyond the scope of the lease's defined premises.
- 2
CAMAudit classifies each tax line item for category compliance: standard ad valorem property taxes, special improvement district assessments, Mello-Roos bonds, penalty interest, and transfer taxes each have different pass-through eligibility rules. Special assessments require explicit lease authorization and are frequently included in CAM without it.
- 3
CAMAudit generates a finding that lists each flagged tax item, the parcel or assessment type, and the dollar amount. CAMAudit's output includes specific documentation request language for the client's audit rights request: the actual tax bills, the parcel breakdown, and the supporting assessment notices the landlord must produce.
What a finding cites
Related glossary terms
FAQ
Questions about tax overallocation
How does a firm confirm which parcel number a client's lease covers?
The lease should include a legal description of the premises or a reference to a specific parcel identification number (APN). If not, the property tax records for the building's address will show the parcel breakdown. Request the actual tax bills from the landlord as part of the audit to verify which parcels were included.
Are special assessment districts legitimate CAM charges?
Special assessments such as Mello-Roos, business improvement districts, and landscape assessment districts are only legitimate CAM charges if the lease explicitly authorizes them. Leases signed before these assessments were created often do not include them. The specific language in the lease controls whether these charges are pass-through eligible.
Can a landlord charge a tenant for tax penalties and interest?
Generally no. Tax penalties and interest result from the landlord's failure to pay taxes on time and represent an administrative failure, not a legitimate operating expense. Most courts and arbitrators have found these charges impermissible even when the lease does not explicitly exclude them.
What if a client's building was recently reassessed?
A reassessment can increase taxes significantly. The lease should specify how reassessment-related tax increases are handled. Some leases exclude increases from supplemental assessments triggered by the landlord's sale of the property. If the building changed hands during the lease term, check whether the post-sale reassessment increase is pass-through eligible under the specific lease language.
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