CAM Exclusions Every Commercial Lease Should Have

Every dollar that lands outside a well-drafted exclusion list is a dollar your landlord can charge to you. CAM exclusion clauses are not boilerplate — they are the primary mechanism that determines whether your annual operating expense charges reflect actual shared costs or a broader transfer of landlord overhead. A tenant who negotiates a short exclusion list will spend years paying for items that courts and industry standards consistently identify as improper, according to ABA Real Property Section guidance on commercial lease dispute patterns.

The ICSC (International Council of Shopping Centers) explicitly advises tenants to include specific exclusions in CAM provisions so that "landlord is not using CAM as a profit center." What follows is each category of exclusions that belongs in a well-negotiated commercial lease, with the operative language to request for each.

Why the Exclusion List Is the Most Important Clause in Your CAM Section

Most commercial leases define CAM costs using an expansive catch-all: "all costs incurred by Landlord in connection with the operation, maintenance, management, repair, and replacement of the Property." Then they rely on exclusions to carve back improper items. The default position heavily favors the landlord: if an item isn't explicitly excluded, it's likely billable.

On a mid-size retail lease at $25/SF of CAM costs, a weak exclusion list compared to a strong one can represent $15,000–$40,000 in annual exposure, compounding over a five-year term. That spread reflects the categories most commonly contested in commercial lease audits, not a worst-case scenario.

The fight is always in the exclusions.

Category 1: Capital Expenditures

What to exclude: Any cost that extends the useful life of a building component, replaces a structural element, or constitutes an improvement to the property as opposed to ordinary maintenance.

Why it matters: The IRS distinguishes capital expenditures from ordinary operating expenses under Treas. Reg. § 1.263(a)-3, and the line matters here because capital costs benefit the landlord's asset over multiple years, not just the current tenants. A roof replacement that lasts 25 years should not be billed as a single-year CAM charge.

Tenant-favorable language:

"CAM costs shall not include: (i) costs of capital improvements, capital replacements, or capital additions, meaning any expenditure that (a) extends the useful life of a building component by more than one year, (b) adds a new structural element or system to the Property, or (c) constitutes an improvement that increases the value of the Property beyond its pre-renovation state; provided, however, that if Landlord includes the amortized portion of any capital expenditure that reduces CAM costs and Tenant provides written approval in advance, such amortized portion may be included at the amortization rate specified."

Red flag language to watch for: "Costs reasonably capitalized" or "costs amortized over their useful life" without any definition of what triggers capitalization — this gives landlords discretion to shift ordinary repairs into capital treatment with amortized pass-through.

Category 2: Management Fees Above Market

What to exclude: Management fees calculated as a percentage of gross revenues rather than actual costs, or fees charged by landlord affiliates at above-market rates.

Why it matters: The ICSC's CAM reconciliation training materials identify management fee disputes as among the most common CAM audit findings. When fees are calculated as a percentage of gross revenues rather than actual management costs, tenants pay more as rents rise even if the cost of managing the property is unchanged. When fees go to affiliated entities at non-arm's-length rates, tenants fund an internal profit center.

Tenant-favorable language:

"CAM costs shall not include: (ii) management fees, administrative fees, or property management salaries in excess of the lesser of (a) three percent (3%) of gross revenues from the Property, or (b) the then-prevailing market rate for comparable management services from unaffiliated third parties in the same submarket; and in no event shall any management fees paid to an affiliate of Landlord exceed the rate that Landlord would pay to an unaffiliated third-party manager for equivalent services."

Why 3% matters: Cox Castle & Nicholson's commercial leasing guidance notes that CAM caps on management fees typically run in the 3–5% range. Pinning the cap to the lower of a percentage and market rate closes the dual exposure.

Category 3: Landlord Overhead and Salaries

What to exclude: Executive salaries above the property manager level, corporate overhead, profit, and administrative costs not directly attributable to operating the specific property.

Why it matters: Landlords sometimes attempt to recover a portion of corporate salaries, accounting overhead, legal fees for lease enforcement, or home-office expenses through CAM. None of these costs relate to maintaining the common areas tenants share. The ABA Real Property Section distinguishes costs "incident to the landlord's general enterprise" from costs "incident to the operation of the leased premises."

Tenant-favorable language:

"CAM costs shall not include: (iii) salaries, wages, or benefits of employees above the level of on-site property manager, corporate overhead allocations, accounting fees for preparation of Landlord's financial statements, legal fees incurred in connection with lease negotiations or enforcement against any tenant, or any costs representing profit to Landlord or its affiliates."

Category 4: Costs Recovered from Insurance or Warranties

What to exclude: Any cost that Landlord recovers or is entitled to recover through insurance proceeds, warranty claims, condemnation awards, or contributions from other parties.

Why it matters: Double-recovery is a recognized audit finding. If a storm damages the parking lot and the landlord recovers the repair cost from insurance, that cost should not also appear in the CAM reconciliation. Courts and industry guidance treat insurance recovery as a credit against CAM expenses.

Tenant-favorable language:

"CAM costs shall not include: (iv) any cost or expense to the extent Landlord recovers, or is entitled to recover, such cost or expense through insurance proceeds, warranty claims, condemnation proceeds, or contributions from third parties; and Landlord shall apply all such recoveries as a credit to the applicable CAM expense category in the year received."

Category 5: Costs of Vacant Space and Unleased Areas

What to exclude: Costs specifically attributable to vacant, unleased, or unoccupied tenant spaces, including direct costs like electricity or security for empty units.

Why it matters: When a building has significant vacancy, costs that vary with occupancy — janitorial, utilities for specific spaces, HVAC for individual suites — should not be shifted entirely to occupied tenants. BOMA's guidance on pro-rata share and gross-up provisions addresses this dynamic: variable expenses should reflect actual conditions in the occupied areas.

Tenant-favorable language:

"CAM costs shall not include: (v) direct costs attributable to the operation of vacant, unleased, or unoccupied tenant spaces within the Building, including without limitation electricity, janitorial services, or HVAC costs for such spaces; provided that nothing in this provision shall limit Landlord's ability to gross up variable expenses pursuant to Section [gross-up provision] for purposes of calculating Base Year costs."

Category 6: Financing Costs and Debt Service

What to exclude: Mortgage interest, principal payments, ground rent, financing charges, refinancing costs, and any costs associated with Landlord's debt obligations.

Why it matters: These costs relate to the landlord's investment structure, not common area operations. No tenant should subsidize a landlord's financing decisions.

Tenant-favorable language:

"CAM costs shall not include: (vi) debt service, mortgage interest, ground rent, principal amortization, refinancing costs, or any other costs related to Landlord's financing arrangements for the Property."

Category 7: Depreciation and Amortization (Except as Agreed)

What to exclude: Accounting depreciation and amortization charges, except for agreed capital expenditures with tenant consent.

Why it matters: Depreciation is not a cash expenditure. It is an accounting allocation of prior capital cost. Including it in CAM lets landlords recover original building construction costs through ongoing tenant charges.

Tenant-favorable language:

"CAM costs shall not include: (vii) depreciation or amortization of any portion of the Property, except for the amortized portion of tenant-approved capital expenditures as expressly permitted under Section [capital expenditure provision]."

Category 8: Leasing Costs and Tenant Improvements

What to exclude: Leasing commissions, tenant improvement allowances, free rent periods, space preparation costs for new or renewing tenants, and legal fees for lease negotiations.

Why it matters: These costs benefit specific tenants or support the landlord's leasing activity. They are not common area maintenance costs. Attempting to include them in operating expenses is a recognized audit finding.

Tenant-favorable language:

"CAM costs shall not include: (viii) leasing commissions, finders' fees, tenant improvement costs or allowances, space preparation expenses, free rent concessions, moving allowances, or legal fees incurred in connection with lease negotiations, renewals, or enforcement."

Category 9: Costs of Compliance with Landlord's Legal Obligations

What to exclude: Costs of correcting building code violations that predate the lease term, asbestos or hazardous material remediation not caused by tenant, and ADA compliance for structural elements.

Why it matters: Tenants should not pay for the landlord's preexisting noncompliance. Hazardous material remediation and structural ADA retrofits benefit the property's long-term asset value and relate to the landlord's duty to deliver a compliant building.

Tenant-favorable language:

"CAM costs shall not include: (ix) costs of correcting code violations existing as of the Commencement Date, hazardous material or environmental remediation not caused by Tenant or Tenant's agents, or structural improvements required to comply with the Americans with Disabilities Act that constitute capital improvements under applicable IRS guidance."

Category 10: Costs of Anchor Tenants and Major Tenants

What to exclude: Any costs that are the specific responsibility of anchor tenants or other tenants with separate maintenance obligations, and any amounts for which the landlord has a reimbursement right from another tenant.

Why it matters: ICSC materials explicitly identify the anchor exclusion dynamic: if an anchor tenant pays a fixed CAM amount or maintains its own parcel, the inline tenants' pro-rata denominator should not include the anchor's square footage — otherwise inline tenants effectively subsidize any shortfall between the anchor's fixed payment and its actual cost share.

Tenant-favorable language:

"CAM costs shall not include: (x) costs that are the specific maintenance responsibility of any anchor tenant, major tenant, or outparcel tenant under their respective leases, or any amounts for which Landlord has, or is entitled to, reimbursement from another tenant or third party."

Combining the Exclusions: What a Complete List Looks Like

A tenant-favorable exclusion clause in a commercial lease should enumerate all ten categories above, plus a catch-all for costs not directly related to operating the defined common areas. Here is what the combined structure looks like:

Section [X].2 — Exclusions from CAM Costs. Notwithstanding any provision of this Lease to the contrary, CAM Costs shall not include any of the following:

(a) Capital expenditures, capital improvements, or capital replacements, except amortized portions of Tenant-approved capital expenditures as provided in Section [X].3;

(b) Management fees in excess of three percent (3%) of gross revenues or market rate, whichever is less, and fees paid to affiliates above arm's-length rates;

(c) Salaries, wages, and benefits of employees above the on-site property manager level, corporate overhead, and non-property-level administrative costs;

(d) Costs recovered through insurance proceeds, warranties, condemnation awards, or third-party contributions;

(e) Direct costs attributable to vacant or unleased tenant spaces;

(f) Mortgage interest, debt service, ground rent, and financing charges;

(g) Depreciation and amortization except as permitted under Section [X].3;

(h) Leasing commissions, tenant improvement allowances, and lease-related legal fees;

(i) Costs of pre-lease code violations, hazardous material remediation not caused by Tenant, and structural ADA capital improvements;

(j) Costs that are the specific responsibility of anchor or outparcel tenants, and amounts recoverable from other tenants;

(k) Any cost not directly related to the operation, maintenance, and repair of the defined Common Areas of the Property.

What Happens Without These Exclusions

Without explicit exclusions, any of the following can appear in your annual CAM reconciliation:

• A roof replacement billed at full cost in a single year
• Management fees to a landlord-affiliated entity at 8% of gross revenues
• A portion of the regional property manager's compensation
• Environmental testing costs for pre-existing contamination
• Leasing commissions for new tenants signed during your lease term

These are not hypothetical. They are the items that appear most frequently in commercial lease audits. ICSC workshop materials describe the audit process as primarily focused on identifying costs that do not belong in CAM, which is another way of saying the exclusion list is doing all the work.

The Audit Rights Connection

Even the best exclusion list requires an enforcement mechanism. Negotiating audit rights that allow you to inspect the landlord's books and records is the only way to verify that excluded costs have not been included. See our guide on Audit Rights Clauses: How to Protect Yourself Before Signing for the language that makes audit rights effective.

Frequently Asked Questions

What is the most commonly missed CAM exclusion?

Capital expenditures. Many tenants focus on the headline CAM rate and miss that the landlord can replace major building systems — roofs, HVAC, parking lot resurfacing — and pass the full cost through in a single year. A capital expenditure exclusion with a clear definition of "capital" is the single most valuable clause to negotiate.

Can a landlord refuse to include exclusions?

Landlords routinely push back on exclusion lists, particularly management fee caps and capital expenditure exclusions. In practice, the breadth of exclusions correlates with the tenant's credit strength and square footage. Anchor tenants typically receive comprehensive exclusion lists; small inline tenants often receive none. Understanding your leverage and the market standard for your asset class is essential before negotiating.

Does a gross lease eliminate the need for CAM exclusions?

In a true gross lease, the landlord absorbs all operating costs within the base rent. If you have a gross lease, CAM exclusions are irrelevant. However, many leases labeled "gross" or "modified gross" include operating expense escalation clauses that function similarly to NNN CAM provisions — those provisions require the same exclusion analysis.

Are CAM exclusions enforceable even if the lease also contains a landlord-favorable catch-all?

Yes. Courts applying contract interpretation principles generally read specific exclusions as controlling over general inclusions. A specific exclusion for capital expenditures will typically prevail over a general catch-all defining CAM as "all costs of operation." This is the standard rule of construction: specific language controls general language.

What is the statute of limitations on contesting improper CAM charges?

It varies by state. California provides four years under Code of Civil Procedure § 337. Texas provides four years under Civil Practice & Remedies Code § 16.004. New York provides six years under CPLR § 213. Illinois provides ten years for written contracts under 735 ILCS 5/13-206. The limitations period runs from when the claim accrues — generally when the improper charge was assessed or when the tenant knew or should have known of the improper billing methodology.

Related reading:

• The Commercial Tenant's Guide to CAM Lease Language — complete guide to all ten CAM provisions
• How to Negotiate a CAM Cap in a Commercial Lease
• Audit Rights Clauses: How to Protect Yourself Before Signing
• What Is Predatory CAM Language?