Learn when landlords can amortize capital expenditures through CAM, the three tests that determine whether a CapEx qualifies, and how to challenge inflated or improper amortization charges.
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Find My OverchargesSee a sample report firstCapital expenditure amortization is one of the most technically complex CAM issues. Unlike straightforward overcharges such as a wrong pro-rata share or an excluded service billed as operating expense, CapEx amortization requires you to assess whether the charge was ever permissible and, if so, whether it is being calculated correctly.
The short version: most commercial leases exclude capital expenditures from CAM entirely, or allow them only under specific exceptions with strict calculation requirements. When landlords amortize CapEx without meeting those conditions, you are paying for costs the lease never authorized.
The presence of amortization language in your CAM statement does not mean the charge is legitimate. Three separate questions must be answered: Does your lease permit this CapEx to be passed through at all? Is the useful life period correct under MACRS? And is interest, if charged, calculated on the declining balance rather than the original cost?
40% of CAM reconciliations contain at least one billing error, with improper CapEx amortization one of the most common and least-challenged categories (Tango Analytics, 2023)
The standard commercial lease starts from a simple premise: CAM recovers operating and maintenance costs. Capital expenditures, which produce long-lived assets and would be capitalized under GAAP, are a different category.
Most leases reflect this with explicit exclusion language:
"Operating Expenses shall not include capital expenditures, as determined in accordance with generally accepted accounting principles."
Under this default, no CapEx amortization belongs in CAM. The landlord absorbs those costs as ownership expenses.
For context on how the IRS defines capital vs. operating at the regulatory level, see CapEx Amortization IRS Cross-Reference, which covers IRC Section 263 tests in detail.
Two exceptions appear in many commercial leases and allow CapEx recovery through amortization.
Improvements required by law or regulation after the lease is signed can often be passed through. Examples: fire suppression upgrades required by new building codes, ADA compliance work mandated by a government order, environmental remediation required by regulatory action.
The key qualifier: the requirement must arise after the lease execution date. If the building already had a code violation when you signed, the landlord cannot later charge you to fix it.
Many leases allow amortization of capital projects that reduce operating costs, but only up to the amount of annual savings generated. The logic: if a new HVAC system saves $30,000 per year in energy costs, tenants can be charged for up to $30,000 per year as CapEx amortization.
This exception is frequently abused. Landlords estimate savings optimistically, do not reduce the charge even when savings do not materialize, and continue billing after the amortization period ends.
Start here. Read your lease's definition of Operating Expenses and the list of exclusions. If capital expenditures are excluded without exception, any amortization charge is improper. If exceptions exist, identify which exception applies to this specific project.
When leases permit CapEx amortization, they typically specify that the cost must be amortized over the asset's useful life. The IRS provides guidance through MACRS (Modified Accelerated Cost Recovery System) schedules:
A landlord who amortizes a roof replacement over 10 years instead of 39 is charging you at nearly four times the correct annual rate. On a $400,000 roof, the difference is $30,769/year vs. $10,256/year. At a 10% pro-rata share, that is a $2,051 annual overcharge from this error alone.
Some leases authorize the landlord to charge interest on the unamortized balance of a CapEx item, on the theory that they fronted the cash and are entitled to a return. Where this is authorized, verify:
A common error: charging 8% interest on the full $400,000 year after year instead of on the declining balance. That is $32,000/year in interest charges vs. a declining schedule that should average around $16,000/year over the amortization period.
Landlord installs new building-wide lighting system: $150,000. The lease permits CapEx amortization for cost-saving improvements amortized over useful life with interest.
Landlord actually charges: $150,000 / 5 years = $30,000/year (too short) plus 6% on full $150,000 each year ($9,000) = $39,000/year.
At your 8% pro-rata share:
Over the 5-year charge period: roughly $2,200 in overcharges from this one item.
15-20% of total annual CAM spending is recoverable through audit when CapEx amortization is improperly calculated or unauthorized (Springbord Research, 2023)
For more on how non-cash depreciation entries (separate from amortization) can appear in CAM, see Depreciation in CAM Charges. For the broader IRS framework on what qualifies as capital vs. operating, see CapEx vs. OpEx in CAM Charges.
After identifying overcharges, see CAM Recovery for how to structure the dispute and CAM Cap Violation Guide for how amortized CapEx interacts with your annual CAM cap.
If your lease excludes capital expenditures without an exception, no amortization is permitted. If the lease is silent on the topic, the general exclusion of capital expenditures from operating expenses (under GAAP principles) applies. Silence is not authorization.
Generally no. Amortization of pre-lease capital expenditures is not a current-year operating cost you agreed to cover. Your lease period governs your obligations. Pre-existing amortization schedules from work done before your tenancy are typically not your responsibility.
Request the capital expenditure register and note the original installation date and amortization period. If the asset was installed in 2015 with a 10-year amortization, any charge in your 2026 reconciliation for that item is improper. The landlord is billing you after the schedule ended.
Parking lot resurfacing is often treated as a repair (deductible operating expense), not a capital item. But if the entire lot is replaced, it may be capital. The MACRS classification for land improvements is 15 years. If it is a true capital replacement being amortized, verify the useful life and that it qualifies under your lease's permitted exceptions.
Amortization charges stop at lease expiration unless your lease explicitly provides for continuation. You cannot be charged for years beyond your tenancy. This also means you should review your end-of-lease reconciliation carefully for amortization charges that extend past your move-out date.
CAMAudit's detection engine checks every CapEx amortization charge against the applicable MACRS useful life schedule and flags items where the amortization period is shorter than the standard life or where interest charges are calculated on non-declining balances.
Related: Capital Expenditures in CAM | Excluded Services in CAM Charges
Can a landlord amortize capital expenditures through CAM charges?
Only if your lease explicitly permits it. Most commercial leases exclude capital expenditures from CAM by default. The two common exceptions are government-mandated improvements arising after lease execution and cost-saving improvements, but both require specific lease language and must meet strict calculation requirements.
What is the correct amortization period for CapEx in a CAM reconciliation?
The amortization period should match the asset's useful life under IRS MACRS schedules: 5 to 7 years for HVAC and equipment, 15 years for land improvements like parking lots, and 39 years for building structure. A landlord amortizing a roof replacement over 10 years instead of 39 charges nearly four times the correct annual amount.
How do I tell if a CAM line item is an improper capital expenditure passthrough?
Look for single large line items that are atypically large compared to prior years, or items described as replacements rather than repairs. Full parking lot resurfacing, roof replacements, HVAC system replacements, and lobby renovations are almost always capital expenditures. Request the original invoice and scope of work to confirm.
What happens if the amortization period in my CAM reconciliation has already ended?
Any charge in the current year for a fully amortized asset is improper. Request the capital expenditure register showing the installation date and the amortization schedule. If the asset was installed in 2015 with a 10-year schedule, charges appearing in your 2026 reconciliation for that item should be disputed.
Can a landlord charge interest on top of CapEx amortization in CAM?
Some leases authorize interest on the unamortized balance, but the interest must be calculated on the declining balance, not the full original cost each year. Verify the rate matches the lease-specified rate and that the interest charge decreases each year as the balance amortizes. Fixed-rate interest on the original cost is a common overcharge pattern.
