Medical practice lease audit: are you overpaying for shared building expenses?
Medical office buildings are not standard commercial real estate. They are purpose-built for a specific type of tenant with specific operational needs, and they carry a category of shared expenses that doesn't exist in standard office buildings or retail centers.
The question for practice managers and office administrators is: how many of those specialized expenses are you paying for that your practice doesn't actually use?
Here's what most medical practice tenants don't know: CAM in a medical office building (MOB) often includes building-wide services such as medical-grade HVAC, elevator systems rated for stretcher capacity, biohazard waste infrastructure, specialized building security, and clinical utility systems. These are allocated across all tenants by pro-rata square footage, regardless of which tenants actually use them.
If you are a dermatology practice on the second floor of a four-story MOB and you're paying a pro-rata share of stretcher-capable elevator maintenance alongside the orthopedic surgery center on the first floor, the question worth asking is whether your lease requires that allocation and whether the math is correct.
MOB (Medical Office Building): A commercial building purpose-built or converted for healthcare tenants. MOBs typically include specialized building systems such as medical-grade HVAC, reinforced flooring for imaging equipment, clinical utility connections, and accessibility infrastructure beyond standard ADA requirements. These specialized systems increase the shared operating expense pool relative to standard office buildings.
What specialized expenses appear in MOB CAM pools
Before auditing your CAM statement, it helps to understand what categories of expenses commonly appear in MOB pools and why they create allocation complexity.
Medical-grade HVAC. Clinical spaces require temperature and humidity control within tighter tolerances than standard offices. The building's central HVAC system may be upgraded to medical specifications, and maintenance costs are higher as a result. These costs flow into the CAM pool.
Specialty elevators. Elevators in MOBs often have larger cabs, heavier capacity ratings, and specific door-open timing to accommodate patients on gurneys, wheelchairs, and medical equipment transport. Maintenance and inspection costs for these elevators are pooled across tenants.
Biohazard waste infrastructure. Centralized sharps disposal stations, medical waste holding rooms, and regulated waste collection systems in MOBs are sometimes included in building operating expenses. All tenants contribute to these costs through CAM even if their practice generates minimal regulated waste.
Clinical utility connections. Oxygen, medical air, and vacuum systems may be building-supplied in some MOBs. If the CAM pool includes maintenance of these systems, all tenants pay a share.
Specialized security. Healthcare buildings often have higher security requirements: after-hours access systems, clinical-area access control, security personnel, and monitoring. These costs can be substantial and are typically pooled across all tenants.
Parking structure or valet management. MOBs at hospital campuses or major medical centers sometimes include parking structure maintenance in the CAM pool. For practices that rely heavily on patient parking, this is expected, but the allocation method may not accurately reflect patient volume.
Why MOB pro-rata calculations go wrong
The same pro-rata errors that affect all NNN leases appear in MOBs, with some additional factors specific to healthcare buildings.
Tenant mix volatility. Medical practices open, close, expand, and downsize more frequently than standard office tenants. A practice that occupied 4,000 square feet and renews at 2,800 square feet changes the rentable area calculation. If the landlord's management system doesn't update the denominator promptly, your share percentage is calculated against stale data.
Owner-occupied or affiliate-occupied space. MOBs are sometimes owned by hospital systems, physician groups, or real estate entities affiliated with the anchor medical practice. If owner-occupied or affiliate-occupied space is not properly excluded from the rentable area denominator (or is included in ways that your lease doesn't contemplate), the pro-rata calculation shifts.
Shell space treatment. When a suite is in shell condition, waiting for a new tenant's build-out, how that space is treated in the denominator varies by lease and by landlord practice. If shell space is included in the denominator, your share is lower. If it's excluded, your share is higher. Your lease's vacancy and shell space provisions control which is correct.
More on that below when we get to specific audit steps.
Management fee issues in MOB leases
Property management in a medical office building is specialized and more expensive than standard commercial property management. Healthcare building managers deal with regulatory compliance, clinical tenant needs, medical waste oversight, and more complex building systems. The management fee reflects this.
That said, management fees still have lease caps, and those caps still get exceeded. The patterns are the same as any commercial lease:
- The management fee percentage exceeds the lease cap
- An administrative fee is charged separately, in addition to the management fee, creating a combined percentage that exceeds the cap
- The management fee is calculated on a gross operating expense base that includes items that should be excluded under the lease
For practice managers reviewing a reconciliation, the management fee line item is the first place to check. If the reconciliation shows a 5.5% fee against a 5% lease cap, the delta is recoverable.
If that sounds like a small difference, consider the math. A $500,000 annual operating expense pool in a mid-size MOB with a 0.5% management fee excess generates $2,500 per year in overcharges. Over a three-year lookback, that is $9,750. For a large MOB with a $2 million operating expense pool, the same 0.5% excess generates $10,000 per year.
"Practice administrators are some of the most operationally rigorous people in any business. They track supply costs to the penny. The same attention applied to the annual CAM reconciliation routinely finds recoverable overcharges that have been paid for years." — Angel Campa, Founder of CAMAudit
What to audit in a medical practice CAM statement
Here is a practical review sequence for practice managers:
Step 1: Verify the management fee. Find your lease's fee cap (typically in the CAM or operating expense section). Compare it to the management fee line item in the reconciliation. If there are multiple fee line items, add them together and compare to the cap.
Step 2: Check the pro-rata denominator. Request a rent roll from the landlord showing all suites and their current square footage. Divide your square footage by the total. Compare to the pro-rata percentage used in the reconciliation.
Step 3: Review large line items. Any line item representing more than 10% of total CAM is worth reviewing. Identify what the expense is and whether your lease includes or excludes it. Common items to check: HVAC major repair or replacement, elevator modernization, parking structure capital work, specialized security system installation.
Step 4: Check for capital versus operating expense classification. Your lease likely distinguishes between operating expenses (recurring, annual) and capital improvements (major, long-lived). Capital improvements may need to be amortized over their useful life rather than expensed fully in the year incurred. A major HVAC replacement or roof replacement appearing as a full current-year charge is a common finding.
Step 5: Review excluded services. Medical office leases often exclude certain expenses: leasing commissions, building depreciation, financing costs, executive salaries. Scan the reconciliation for any line items that resemble these categories.
Step 6: Verify the true-up arithmetic. Add up your monthly estimated payments. Subtract from total billed. Confirm the true-up amount matches the math.
CAMAudit can process your reconciliation and flag potential violations at each of these checkpoints automatically. Upload your statement at CAMAudit for a free scan.
The audit window for medical practices
Commercial leases typically provide 12-24 months from receipt of the annual reconciliation to contest charges. For medical practices that have not reviewed prior reconciliations carefully, any statements within the lookback window are potentially worth examining.
If your practice has been in the same building for five years and has never formally reviewed the CAM reconciliation, and your lease provides an 18-month audit window, the most recent statement and potentially the one before it may have recoverable amounts that have not yet expired.
The practical step is to start with the most recent reconciliation. If CAMAudit flags overcharges there, examine whether the same pattern exists in prior-year statements that are still within the window.
Questions practice managers ask about MOB CAM audits
Frequently Asked Questions
Are specialized MOB systems like medical-grade HVAC always included in CAM?
Not automatically. Whether specialized systems are included depends on your lease's definition of operating expenses. Some MOB leases specifically list building systems that are included. Others are broader. Read your lease's operating expense definition carefully.
How do I request a rent roll from my landlord to verify pro-rata calculations?
Your lease's audit rights clause typically gives you the right to inspect the landlord's books and records supporting the CAM calculation. A formal written request citing this clause is the most effective approach. Most landlords comply within 30 days.
What is a normal CAM per square foot for a medical office building?
MOB CAM expenses vary significantly by market, building age, and amenity level. Year-over-year increases of more than 8-10% without a clear explanation are worth questioning regardless of the absolute level.
Can a medical practice audit CAM charges while still operating in the building?
Yes. An audit is a contractual right under your lease, not a contentious action. The lease sets the process, and exercising it does not affect your tenancy.
What if my landlord is a hospital system that owns the MOB?
Hospital system landlords administer CAM the same way other commercial landlords do. Your audit rights and the lease's operating expense provisions apply regardless of the landlord's organizational type.
Sources
- American Medical Association. Physician practice management resources. https://www.ama-assn.org/
- IREM (Institute of Real Estate Management). Medical office building management resources. https://www.irem.org/
- Healthcare Real Estate Insights. Medical office building leasing and operational guidance. https://www.healthcarerealestateinsights.com/
- Tango Analytics. "CAM Reconciliation: Why tenants should verify the math." https://tangoanalytics.com/blog/cam-reconciliation/
Upload your medical practice CAM statement to CAMAudit for a free scan and see which shared expenses in your MOB reconciliation warrant a closer look.