CAM Leakage: The Hidden Revenue Drain in Commercial Portfolios

Every commercial lease defines what expenses the landlord can recover and how the math works. The lease says one thing. The billing system does another. The difference is leakage.

It is not fraud. It is not aggressive billing. It is the opposite: the landlord has the contractual right to recover an expense but the reconciliation process fails to capture it. The tenant pays less than the lease requires, and nobody notices because the error is buried inside a calculation that nobody manually verifies against the lease abstract.

CAM leakage is distinct from overbilling. Overbilling charges the tenant more than the lease allows and creates audit exposure. Leakage charges the tenant less than the lease allows and creates a revenue gap that compounds every year it goes undetected. Most property accounting teams are trained to watch for overbilling risk. Very few have processes to detect underbilling.

What Is CAM Leakage?

CAM leakage occurs whenever the actual amount billed to tenants falls below what the lease terms authorize. The gap can come from any step in the reconciliation pipeline: expense classification, occupancy adjustments, cap calculations, pro-rata share math, or base year comparisons.

A single leakage source might cost a few hundred dollars per tenant per year. That sounds manageable until you multiply it across 30 tenants, 15 buildings, and five years of compounding. At portfolio scale, leakage becomes one of the largest controllable drains on net operating income.

The challenge is visibility. Leakage does not generate complaints. Tenants do not call to report that they are being undercharged. Property managers do not receive error messages when a gross-up factor is missing. The spreadsheet produces a number, the statement goes out, and the shortfall quietly reduces NOI.

For a broader introduction to the reconciliation process and where it breaks down, see what is CAM reconciliation.

The Five Types of CAM Leakage

Each type originates at a different point in the reconciliation workflow. Fixing one does not fix the others. A portfolio can have zero gross-up leakage and still lose significant revenue through cap escalator drift.

How Much Is CAM Leakage Costing You?

The dollar impact depends on building size, operating expense levels, and how many leakage types are present simultaneously. The following estimates are modeled using benchmark assumptions for a Class A suburban office building. Your actual figures will vary based on lease structures, expense profiles, and portfolio composition.

These estimates assume operating expenses of approximately $11.78 per rentable square foot, a figure consistent with published BOMA benchmarks for suburban office properties. At that rate, a 200,000 SF building generates roughly $2.36 million in annual operating expenses flowing through the CAM pool. A leakage rate of 0.25% on that pool is $5,900 per year. A rate of 1.5% is $35,300.

Neither number sounds catastrophic in isolation. The problem is that leakage compounds across buildings and years. A 15-building portfolio with an average leakage rate of 1% loses an estimated $354,000 annually. Over a typical five-year hold period, that is $1.77 million in revenue that was contractually owed but never collected.

The NOI impact amplifies at disposition. At a 6% cap rate, every $100,000 in annual leakage reduces property valuation by approximately $1.67 million. A portfolio losing $354,000 per year to leakage is carrying an estimated $5.9 million valuation drag that disappears the moment the leakage is corrected.

Use the CAM leakage estimator to model the impact for your specific portfolio using your own square footage and expense figures.

A Real-World Leakage Scenario

Consider a 200,000 SF office building with $2,356,000 in annual operating expenses, 78% occupancy, and 25 tenants. The lease portfolio includes a mix of net, modified gross, and full-service gross structures. Here is how each leakage type might appear in a single building during a single reconciliation year.

Gross-up leakage. The building is at 78% occupancy against a 95% target. Variable expenses total $940,000. The correct gross-up factor is 95% / 78% = 1.218. The billing system applies the factor to utilities and janitorial ($620,000) but not to security or landscaping ($320,000). The missing gross-up on those two categories: $320,000 x (1.218 - 1.0) = $69,760 in expenses that should have been normalized but were not. After applying tenant pro-rata shares, the estimated underbilling is approximately $54,400.

Cap escalator leakage. Three tenants have cumulative 5% caps. Last year, actual controllable expense growth was 2%, banking 3% of unused capacity. This year, expenses grew 7%. The cumulative bank should allow recovery up to 8% (5% cap + 3% banked). But the bank balance was not carried forward during the year-end spreadsheet refresh. The landlord caps at 5% instead of 8%. Estimated leakage across three tenants: approximately $4,200.

Pro-rata share leakage. The building was remeasured under BOMA 2024 standards, increasing total rentable area from 200,000 SF to 206,400 SF. The property management system was updated. The reconciliation spreadsheet was not. Every tenant's share is calculated against 200,000 SF instead of 206,400 SF. Each tenant's share is 3.1% higher than it should be -- but because the error inflates tenant shares, this particular scenario actually overbills tenants rather than creating leakage. The reverse scenario -- a denominator that is too large -- is what creates leakage. If the spreadsheet used 210,000 SF instead of 206,400 SF, every tenant would be underbilled by approximately 1.7%.

Expense classification leakage. A $38,000 HVAC preventive maintenance contract was coded to GL account 6900 (Capital Improvements) instead of 6500 (Repairs and Maintenance). The expense is legitimate, the lease allows recovery, but the capital GL account is excluded from the CAM pool. The full $38,000 goes unrecovered.

Base year drift leakage. Two modified gross tenants signed lease amendments in the prior year that expanded their suites and reset their base years. The new base year amounts were calculated but the reconciliation template still references the original, lower base year figures. The tenants are paying increases above the old baseline instead of the new one. Estimated annual impact: approximately $6,800 across both tenants.

Total estimated leakage for this single building in this single year: approximately $103,400. Not every building will have all five types active simultaneously. But buildings with manual reconciliation processes and recent changes -- ownership transitions, remeasurements, lease amendments, or property manager turnover -- are more likely to have multiple leakage sources running concurrently.

Why CAM Leakage Goes Undetected

If leakage is costing landlords this much, why does it persist? The answer is structural, not individual. Property accounting teams are competent. The processes they rely on are not designed to catch underbilling.

Reconciliation is a forward-only process. Most teams start with the GL export, apply lease terms, and produce a statement. There is no reverse validation step that starts with the lease abstract and asks: "Did we capture everything this lease allows?" The process confirms that what was billed is calculated correctly. It does not confirm that everything billable was billed.

Lease abstracts are incomplete or outdated. The reconciliation template pulls from the lease abstract, not from the lease itself. If the abstract does not capture a gross-up provision, a cumulative cap structure, or an amendment that changed the base year, the template will never include it. The error is upstream of the calculation.

Staff turnover erases institutional knowledge. A property manager who has been running a building for five years knows which tenants have cumulative caps, which leases were amended, and which GL accounts map to recoverable expenses. When that person leaves, the replacement inherits spreadsheets without context. Cumulative cap banks disappear. Amendment adjustments are not applied. Non-obvious GL mappings revert to defaults.

Billing systems are not lease-aware. Yardi, MRI, and most property management platforms track expenses and produce GL reports. They do not read leases. The connection between "what the lease says" and "what the system bills" is maintained entirely by the person building the reconciliation. There is no automated check that the gross-up factor matches the lease's occupancy threshold, or that the cap calculation uses the capped allowable as its base instead of actual expenses.

There is no incentive to find underbilling. Tenant auditors are paid to find overbilling. Nobody is paid to find underbilling. Property managers are evaluated on tenant satisfaction and retention, not on whether they extracted every dollar the lease allows. The asymmetry means overbilling gets caught and corrected. Underbilling persists indefinitely.

How to Detect and Prevent CAM Leakage

The CAM Leakage Recovery Process

Detecting leakage is the first step. Recovering the lost revenue requires a structured process that respects both the lease terms and the tenant relationship.

Quantify the leakage per tenant per year. Before issuing any supplemental billing, calculate the exact dollar amount for each tenant for each affected reconciliation period. Document the source of the error: which lease provision was not applied, what the correct calculation produces, and the difference between what was billed and what should have been billed.

Verify the audit window. Most commercial leases include a reconciliation audit clause that defines how far back either party can look. Common windows are 12, 18, or 24 months from delivery of the original reconciliation statement. If the leakage occurred outside the audit window, recovery may not be enforceable regardless of the lease language. California's SB 1103 adds a statutory 18-month lookback for qualifying small-business tenants. Check your state's applicable limitations.

Issue corrected reconciliation statements. The supplemental billing should include a clear explanation of the error, the corrected calculation, and the additional amount owed. Transparency reduces the probability of disputes. A tenant who receives a corrected statement with supporting documentation is far more likely to pay than one who receives an unexplained additional charge.

Update the reconciliation template. Recovery without prevention means the same leakage will recur next year. Every recovery action should include a corresponding update to the reconciliation template, the lease abstract, or the GL coding rules that caused the original error. If the error was a missing gross-up factor, add the factor. If it was a stale denominator, update the denominator. If it was a lost cap bank, rebuild the bank and document it.

Consider the tenant relationship. Large retroactive billings, even when contractually justified, can damage tenant relationships. Some landlords choose to recover only the current and prior year, waiving older periods as a goodwill gesture while correcting the process going forward. This is a business decision, not an accounting one. The important thing is that the leakage stops compounding.

For a broader view of how reconciliation errors create both overbilling and underbilling exposure, see 7 CAM reconciliation errors.

Estimate Your Portfolio's Leakage

Every portfolio has a different leakage profile. The variables that matter most are building count, average square footage, operating expense levels, occupancy rates, and the complexity of your lease structures. Portfolios with more modified gross leases, more cumulative caps, and more recent amendments tend to have higher leakage rates because there are more places for the calculation to break.

The CAM leakage estimator lets you input your portfolio parameters and produces a modeled leakage range based on benchmark assumptions. It is not a substitute for the lease-by-lease audit described above, but it gives you a defensible starting point for deciding whether a full leakage review is worth the investment.