Back to Resources

CAM Reconciliation Overbilling: Landlord Liability, Penalties, and How to Avoid It

By Angel Campa, Founder, CAMAudit

Quick Answer

CAM overbilling occurs when a reconciliation statement charges a tenant more than the lease permits. It is a breach of contract regardless of intent. Most overbilling is accidental, driven by gross-up misapplication or cap bank errors, not bad faith. The exposure ranges from simple restitution in most jurisdictions to treble damages in California under SB 1103.

40%

Of reconciliations contain material billing errors

PredictAP

28%

Of tenants independently discover discrepancies without hiring an auditor

JLL 2023 via PredictAP

15–20%

Average cost recovery in successful tenant audits

Cubework

How Overbilling Happens, and Why Intent Doesn't Matter

Most CAM overbilling is not deliberate. It is the compounding result of accounting conventions that were never designed to handle complex lease structures, and billing systems that accept wrong inputs without complaint.

That distinction matters for understanding how it happens, but it does not matter legally. A reconciliation statement is the landlord's representation that the charges are accurate and consistent with the lease. If they are not, the tenant has a breach-of-contract claim. The cause is relevant to damages; it does not create a safe harbor.

Gross-up applied to fixed expenses

The gross-up adjustment normalizes variable costs to what they would be at full occupancy. Property insurance, real estate taxes, and fixed-contract landscaping do not vary with occupancy; grossing them up overbills tenants in any year where actual occupancy is below target. This is the most commonly cited finding in tenant audit letters. (Source: Stross Law, Lowndes Law)

Cumulative cap bank miscalculated

A cumulative cap lets landlords carry forward unused capacity from prior years. When the bank is miscalculated, whether overstated or drawn against a balance that was already spent, tenants are charged more than the cap structure allows. Many billing systems do not track the bank correctly across multi-year reconciliation periods.

Duplicate billing from AP coding errors

A vendor invoice coded to both the operating expense GL and the CAM recovery GL bills the tenant twice for the same cost. AP coding errors of this type are difficult to detect without cross-referencing the full GL, not just the CAM ledger, against source invoices organized by vendor and period.

Capital improvements billed as operating expenses

A full roof replacement or HVAC system upgrade is a capital expenditure; it is not recoverable as an annual operating expense under most commercial leases. Miscoding it to an operating account and including it in the CAM pool creates an overbilling that professional tenant auditors identify as the highest-yield finding in any portfolio audit.

What Landlords Are Legally Liable For

When an overbilling is confirmed, whether through self-audit, tenant dispute, or formal arbitration, the landlord's exposure typically includes:

Immediate restitution

The primary remedy is restitution: return the overcharged amount via rent credit or cash refund. The amount due is calculated from the reconciliation statement, not the lease's maximum allowable charge. If the overbilling compounded across multiple years, each year in scope under the audit rights clause is included.

Tenant's legal and auditing fees

Most commercial leases include fee-shifting provisions for CAM disputes. If the tenant hired an auditing firm on contingency and the dispute escalated to legal proceedings, the landlord is commonly required to cover those costs if the findings are confirmed. Auditing firms charge 15-33% of recovered amounts as their contingency fee, an amount that comes out of the landlord's pocket if the overcharge is upheld.

The lookback window: 24-36 months

The tenant's audit window is set by the lease's audit rights clause, typically 12 to 36 months from the date the statement was delivered. A landlord who has overbilled systematically, applying gross-up to fixed costs year after year, faces recovery exposure for every year still within the lookback window when the tenant invokes their audit rights. At three years of exposure, a $15,000 annual overbilling becomes a $45,000 liability before fees.

28% of tenants find it on their own

One in four tenants identifies a CAM discrepancy without engaging a professional auditor. Lease renewal negotiations, acquisition due diligence, and tenant CFO reviews are the most common triggers. The landlord has no advance notice, and self-correction before discovery is not possible.

California SB 1103: The Stakes Just Changed

California Landlords: SB 1103 Effective January 1, 2025

Senate Bill 1103, the Commercial Tenant Protection Act, added Civil Code §1950.9 to California law. For landlords with qualifying small-business tenants, a willful overbilling is no longer just a breach-of-contract exposure. It is a statutory violation with treble damages, punitive damages, and attorney's fees.

Qualified Commercial Tenants protected under SB 1103 include microenterprises with 5 or fewer employees under B&P §18000(a), restaurant operators with fewer than 10 employees, and §501(c)(3) nonprofits with fewer than 20 employees.

For willful overbilling against a QCT, courts may award treble damages (three times the actual overbilled amount), plus punitive damages and attorney's fees.

A QCT tenant who has been overbilled can also use the landlord's non-compliance as an affirmative defense in an eviction proceeding. A landlord who overbills and then files an unlawful detainer action may find the overbilling claim defeats it.

Sources: CalLawyers.org · Allen Matkins · Perkins Coie

For the full documentation production requirements and the five compliance gaps that create liability, see the SB 1103 compliance guide.

The practical consequence for California property managers: an overbilling that would have been resolved as a straightforward lease dispute in 2024 can now generate liability three to five times the original overcharge if a court finds the non-compliance was willful. Willfulness does not require bad intent; it requires that the landlord knew or should have known the charges were incorrect. Systematic errors that repeat across multiple reconciliation years are the cases most likely to attract a willfulness finding.

How to Find Overbilling Before the Tenant Does

The goal is to run the same checks a tenant auditor would run, before the reconciliation statement leaves the building.

1

GL scrub: remove non-recoverable expenses from the pool

Pull the full GL for the reconciliation period and go line by line against the lease's expense exclusion list. Owner entity expenses, executive compensation, leasing commissions, capital improvements, and income taxes are not recoverable under virtually any commercial lease. Charges that belong to adjacent properties or shared service centers require allocation documentation. Remove anything that cannot be directly tied to allowable operating expenses for the subject property before building the CAM pool.

2

Segregate fixed and variable pools before applying gross-up

The gross-up adjustment applies only to variable costs: expenses that actually scale with occupancy, such as janitorial, trash removal, and utilities. Property insurance, real estate taxes, and fixed-contract service agreements do not change based on how many tenants occupy the building. Build two separate pools, one for variable costs eligible for gross-up and one for fixed costs that pass through at actual. Applying the occupancy factor to the combined pool is the single most common overbilling mechanism in institutional portfolios.

3

Variance analysis: flag unexplained swings above 5-10%

Compare each expense category to the prior reconciliation year. Any line item with year-over-year growth above 5-10% without a documented explanation, such as a new contract, a rate increase from a specific vendor, or a change in scope, is a flag. Unexplained variance is the pattern tenant auditors use to identify where to focus their invoice review. Find it internally before they do. A $20,000 utility spike that traces to an after-hours HVAC charge that was never credited back to the pool is a recoverable overbilling.

4

Pre-send checklist review before the statement goes out

Before finalizing any reconciliation statement, confirm: (1) the gross-up factor is applied only to variable costs and actual occupancy was below target, (2) the pro-rata denominator matches the lease definition, GLA not leased area, (3) the cap type is correctly identified as cumulative or non-cumulative and the bank balance is accurate, (4) admin fees are calculated on the tenant's reconciled share after cap reduction, not on the gross pool. Each of these is a standalone overbilling mechanism if wrong. See the full CAM pre-send checklist for the complete review sequence.

California SB 1103 Is Live: Catch Overbilling Before It Becomes Treble Damages

CAMAudit checks gross-up segregation, cap bank calculations, and GL expense eligibility against your lease terms before the reconciliation statement goes out. Upload your Yardi or MRI export and get a variance report with dollar figures attached.

Check for Overbilling

Frequently Asked Questions

What is CAM overbilling?

CAM overbilling is charging a tenant more in Common Area Maintenance expenses than the lease permits. It can result from applying gross-up to fixed costs like insurance and taxes, miscalculating the cumulative cap bank, including non-recoverable expenses in the pool, or duplicate AP coding errors. Most instances are unintentional, but unintentional overbilling is still a breach of contract and carries the same legal exposure as deliberate overcharging.

Can a landlord be sued for CAM reconciliation errors?

Yes. A CAM reconciliation statement is the landlord's representation that the charges are accurate and conform to the lease. If they do not, the tenant has a breach-of-contract claim. Damages typically include restitution of the overbilled amount, the tenant's legal and auditing fees if the dispute escalated, and in California under SB 1103, treble damages and punitive damages if the overbilling was willful.

What are the penalties for overbilling under California SB 1103?

California Civil Code §1950.9 (SB 1103, effective January 1, 2025) authorizes treble damages: three times the actual overbilled amount, plus punitive damages and attorney's fees for willful overbilling against Qualified Commercial Tenants. QCTs include microenterprises with 5 or fewer employees, restaurants with fewer than 10 employees, and nonprofits with fewer than 20 employees. A single willful overbilling finding against a qualifying tenant can generate liability many times the original overcharge.

How far back can a tenant dispute CAM charges?

The lookback window is contractual, not statutory; it is set by the audit rights clause in the lease. Most commercial leases give tenants 12 to 36 months from the date the reconciliation statement was delivered. In California, SB 1103 extends a qualified commercial tenant's retrospective documentation request window to 18 months. Once the contractual window closes, the right to challenge prior-year statements is generally extinguished, but tenants who caught the error within the window can pursue recovery for every affected statement still in scope.

How do landlords catch overbilling before sending reconciliation statements?

Four steps before the statement goes out: scrub the GL to remove non-recoverable expenses, segregate fixed and variable cost pools before applying any gross-up, run a variance analysis flagging unexplained year-over-year swings above 5-10%, and run a pre-send checklist covering the gross-up factor, pro-rata denominator, cap type, and admin fee sequence. Catching a $15,000 overbilling internally takes minutes; defending it in arbitration takes months.

Related Resources