What Counts as CAM in a Franchise Lease and What Shouldn't
The core question in any CAM audit is whether the expenses the landlord billed are actually permitted under the lease. Not whether they feel reasonable. Not whether the landlord says they are standard. Whether the specific language in your lease authorizes each charge.
Understanding the difference between what belongs in the CAM pool and what does not is where franchise operators build the foundation for any effective reconciliation review.
What Belongs in the CAM Pool
The following categories appear in the CAM pool of most commercial NNN leases. They represent legitimate operating expenses for the shared property:
Parking lot maintenance: Patching, sweeping, striping, seal coating, snow removal from shared parking areas, and general upkeep. This is the core of "common area" maintenance.
Landscaping: Scheduled lawn care, irrigation system maintenance, seasonal plantings in shared areas, mulching. Reasonable expenses tied to maintaining the property's exterior common areas.
Exterior lighting: Electricity and maintenance for parking lot lighting, pathway lighting, and signage lighting in shared areas. Many leases include the cost of lamp replacements and fixture maintenance.
Building management fee: A charge for the property management services performed by the landlord or a third-party manager. Typically expressed as a percentage of CAM expenses — 5% to 15% is the common range. Many leases cap this fee. If your lease does not cap it, the fee can be higher.
Exterior building maintenance: Routine maintenance of shared building elements — exterior painting, caulking, minor masonry repairs, roof membrane patching (in some leases). Distinguish this from capital repairs, which should be excluded.
Trash and recycling removal: Collection service for shared dumpster areas and common waste streams.
Security: If the property employs security guards or surveillance systems in shared areas, this cost may be included in the CAM pool.
On-site management office: Some leases permit the landlord to include the operating cost of a property management office located on-site. The percentage allocated to property management (as opposed to leasing activity) is usually what is permitted.
What Should Not Be in the CAM Pool
The following categories are excluded in most well-drafted commercial leases. When they appear in reconciliations, they represent a billing error.
Capital expenditures (CapEx): Major repairs or improvements with a useful life beyond one year — roof replacement, parking lot reconstruction, HVAC replacement, elevator modernization. Most leases explicitly exclude CapEx from the CAM pool. The landlord may amortize CapEx and pass through the annual amortization, but this requires specific lease language authorizing it. Without that language, it is an improper charge.
A common example: the landlord resurfaces the entire parking lot — not patch repairs, but full reconstruction — and charges the entire cost as a CAM expense in the year it was performed. At a property where the work cost $180,000 and was spread across ten tenants proportionately, each tenant's share could range from $3,600 to $36,000 in a single year depending on pro-rata share.
Leasing commissions: Fees paid to brokers for finding and signing tenants are landlord costs, not operating expenses of the property. These are almost universally excluded in commercial lease language.
Landlord entity overhead: Corporate salaries, executive compensation, accounting costs for the landlord's portfolio management business, marketing costs for the property management company, and similar costs attributable to the landlord's business entity — not the specific property you lease. These are excluded in most leases under language covering "costs not directly related to the operation of the property."
Legal and accounting fees for landlord disputes: Legal costs the landlord incurs defending against tenant claims, pursuing lease violations, or handling disputes not related to property operations. Some leases specifically exclude legal fees related to the negotiation or enforcement of leases.
Depreciation: Accounting depreciation on building improvements or equipment is a non-cash charge and is uniformly excluded from CAM pools.
Debt service: Mortgage payments, financing costs, and interest on the landlord's property acquisition financing are landlord costs, not operating expenses.
Costs covered by insurance proceeds: If a storm damages the parking lot and insurance covers the repair, the landlord should not also bill that repair as a CAM expense. Double recovery of the same cost is an improper charge.
Expenses attributable to other properties: Management fees, insurance premiums, or tax allocations that include amounts for properties other than the one you lease. This is more common than it should be when a landlord manages a portfolio and allocates costs loosely across multiple properties.
Charges That Commonly Appear But Warrant Scrutiny
The following items appear in reconciliations and may or may not be legitimate depending on your specific lease language:
Management fee plus administrative fee: Some landlords charge both a percentage-based management fee and a separate flat administrative or program management fee. If the lease only authorizes one of these, the second is a billing error. CAMAudit specifically checks for this type of fee stacking.
"Capital improvements" amortized over a short period: A landlord that amortizes a $240,000 parking lot reconstruction over 3 years (producing $80,000/year in CAM) is improperly accelerating a capital cost. Standard amortization for parking lots is closer to 15 to 20 years. The useful life matters.
Tenant fit-out work billed as common area maintenance: Work performed inside a specific tenant's space cannot be included in the shared CAM pool. This occasionally appears when a landlord uses the same contractor for tenant improvement work and common area maintenance and the invoices are not separated.
Utilities at unspecified occupancy levels: If utility charges for common areas are included without specifying the metering basis or how costs are allocated between occupied tenant spaces and actual common areas, the allocation may include amounts that belong in the tenant's direct utility charges rather than the CAM pool.
How to Use the Exclusions List in Your Lease
Your lease's exclusion list is the most powerful tool you have in a CAM review. Find it and read it carefully. Most well-drafted commercial leases include a specific section titled something like "Exclusions from Operating Expenses" or "Items Not Included in CAM."
After reading the exclusion list:
- Pull the line items from your most recent reconciliation.
- For any item that could fall in an excluded category, check whether the lease language would permit it.
- For management fees, verify the stated percentage against the cap in your lease.
- For any "capital improvement" or "capital program" line items, request invoices and verify that the work qualifies as routine maintenance rather than a long-lived improvement.
The excluded service charges detection rule and landlord overhead pass-through rule in CAMAudit both check for these patterns automatically when you provide your lease and reconciliation. The CAM overcharge estimator can give you a preliminary view of exposure before a full audit.
Frequently Asked Questions
Is parking lot resurfacing a CAM charge?
It depends on the scope of work and your lease language. Routine maintenance like patching and seal coating is generally includable. Full reconstruction of a parking lot is usually considered a capital expenditure and should be excluded from CAM unless the lease specifically authorizes amortized CapEx pass-throughs. The useful life and cost of the work are the key factors.
Are capital improvements included in CAM?
Not by default. Most commercial leases explicitly exclude capital expenditures from the CAM pool. Some leases permit the landlord to amortize capital improvements and pass through the annual amortization amount, but this requires specific lease language authorizing it. Without that language, including CapEx in the CAM pool is a billing error.
What CAM items can I dispute?
Any charge that your lease prohibits or does not authorize can be disputed. Common disputable items include: capital expenditures passed through without authorization, management fees exceeding the lease cap, administrative fees charged in addition to a management fee when only one is authorized, landlord entity overhead, legal fees for non-property matters, and costs attributable to properties other than your location.
Is building depreciation part of CAM?
No. Building depreciation is a non-cash accounting charge and is excluded from CAM in virtually all commercial leases. It represents the theoretical reduction in the building's value over time, not an actual operating expense. If depreciation appears on a reconciliation statement, it is an improper charge.