Depreciation is an accounting entry with no out-of-pocket cost. Learn why it is almost always excluded from CAM, how to spot it in your reconciliation, and how to dispute it.
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Find My OverchargesSee a sample report firstDepreciation is not a cash expense. The landlord does not write a check for depreciation. It is an accounting entry that spreads the cost of a capital asset over its useful life on paper. When landlords include depreciation in your CAM reconciliation, they are passing through a phantom cost.
This distinction matters because most commercial leases exclude depreciation from CAM by design. The lease is meant to recover actual operating costs, not non-cash accounting adjustments. When depreciation appears in a reconciliation, it is either a mistake or an intentional overcharge.
CAMAudit treats any depreciation line item in CAM as a high-priority finding. No tenant should be paying for an expense that required no outlay.
Under generally accepted accounting principles (GAAP), when a landlord installs a new roof, replaces HVAC equipment, or builds out a lobby, the cost is not expensed all at once. It is capitalized and spread over the asset's useful life. A $390,000 roof replacement over a 39-year depreciation schedule generates $10,000 in annual depreciation expense on the landlord's books.
That $10,000 appears as a line item in the property's operating expense report. Some landlords, intentionally or through accounting error, include it in the CAM pool submitted to tenants.
The problem: the $390,000 cash was already spent. The landlord already has the money (from operations, financing, or reserves). Billing tenants for depreciation would recover the cash cost twice: once when the work is performed (through CapEx amortization, reserves, or cash), and again each year as depreciation.
Most commercial lease forms exclude depreciation explicitly:
"CAM shall not include depreciation or amortization of the cost of items which would be capitalized under generally accepted accounting principles."
Or more simply:
"Depreciation of the Building or any part thereof is excluded from Operating Expenses."
If your lease has this language, any depreciation charge is a clear violation. If your lease is silent, you have a strong argument based on the non-cash nature of the expense and the general principle that CAM covers actual out-of-pocket operating costs.
The most straightforward version: a depreciation line item appears on your reconciliation labeled "$12,820, Building Depreciation." Rare, because it is easy to spot. More common in portfolios where CAM is managed by accounting teams that export operating expense reports directly without filtering non-cash items.
More common: depreciation is buried inside a broader line item. The landlord runs capital expenses through a depreciation schedule and includes the annual depreciation charge as part of "capital improvements" or "property maintenance." The line item does not say "depreciation" but the underlying math is based on a depreciation schedule.
There is an important distinction between depreciation (non-cash) and legitimate CapEx amortization (cash spread over time). A lease may permit recovery of capital costs through amortization: the actual cash cost divided by the asset's useful life, sometimes with interest. That is different from GAAP depreciation.
If your lease permits CapEx amortization, the landlord should show you the original cash cost, the amortization period, and the annual charge. If instead they hand you a depreciation schedule with asset book values and accumulated depreciation, that is the accounting method, not the lease-compliant method.
See also: Amortization of CapEx in CAM Charges for a detailed breakdown of the distinction.
Building: 200,000 sq ft. Your space: 15,000 sq ft. Pro-rata share: 7.5%.
Landlord's reconciliation includes:
Your share: $15,200 x 7.5% = $1,140.
That is $1,140 you paid for a check the landlord never wrote. Over a 10-year lease: $11,400.
If this is the same asset for which the landlord also charges amortized CapEx, the double-billing is even larger.
Courts have generally held that "all operating expenses" does not mean every line on a GAAP income statement. Depreciation is a non-cash accounting construct, not an out-of-pocket operating cost. Unless your lease explicitly says "including depreciation," the broad phrase does not bring it in.
Depends on your lease. Many leases exclude capital expenditures entirely. Some permit amortized CapEx recovery for specific categories (life-safety improvements, energy-saving measures). The distinction is whether the charge is based on actual cash outlays spread over time (potentially OK) vs. GAAP depreciation (not OK). Read your lease's capital expenditure section carefully.
Not necessarily. Contractual amortization (cash cost divided by useful life) is different from GAAP depreciation (asset book value written down per accounting rules). Whether lease-permitted amortization is actually being charged, or whether GAAP depreciation is being disguised as amortization, requires reviewing the underlying calculation. See Amortization of CapEx in CAM Charges.
On a mid-size commercial property with $3 million to $10 million in capital assets, GAAP depreciation can run $100,000 to $300,000 per year. At a 10% pro-rata share, that is $10,000 to $30,000 annually. For a tenant in a larger building, the numbers are bigger.
Yes, if you are within the audit window specified in your lease (typically 1 to 3 years after reconciliation delivery). Review your lease's audit rights and dispute window. File a written dispute citing the specific lease exclusion language and the amounts involved.
CAMAudit's detection engine flags any non-cash accounting entries appearing in CAM line items, including depreciation, accumulated amortization, and book-value-based charges.
See also: CapEx vs. OpEx in CAM, for the classification framework courts use to distinguish capital from operating expenses.
Related: Amortization of CapEx in CAM Charges | CAM Overcharge Detection Formulas