Monthly CAM is an estimate. The year-end reconciliation replaces it with the actual recoverable pool, and three lease definitions decide how big the true-up is.
A CAM reconciliation takes the actual recoverable common area costs for the year, adds any administrative fee, applies the tenant's pro rata share and deducts the monthly estimates the tenant already paid. On an illustrative 6,000 sq ft shop in a 60,000 sq ft centre, the actual share is $64,647 against $59,400 of estimates, so the tenant owes $5,247, 8.8 per cent more than it paid during the year.
Worked in full in How to Read a Commercial Lease by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Through the year a net-lease tenant pays CAM monthly on the landlord's budget. After the year closes, the landlord compares the budget with what was actually spent and sends a reconciliation statement: a bill if costs ran over, a credit if they ran under. The arithmetic is simple. What makes the number move is the lease: what counts as a recoverable cost, how a capital item is treated, and how a tenant that was not there all year is charged.
| Input | Value |
|---|---|
| Gross leasable area, the lease's denominator | 60,000 sq ft |
| Tenant A, in occupation all year | 6,000 sq ft |
| Tenant B, in occupation from 1 April (275 of 365 days) | 4,500 sq ft |
| Budgeted CAM, the basis of the monthly estimates | $540,000 |
| Administrative fee on recoverable CAM | 10% |
| Actual CAM spent, including one capital item | $612,000 |
| Capital item: car park resurfacing | $27,000 |
| Useful life over which the lease allows it to be amortised | 10 years |
The denominator here is total leasable area, so the shares are 10.0 per cent for tenant A and 7.5 per cent for tenant B. Which denominator the lease uses changes the share far more than anything else in a reconciliation, and is covered in the article on calculating a tenant's pro rata share.
Budget with admin fee = 540,000 × 1.10 = $594,000
Tenant A's estimate = 594,000 × 10.0% = $59,400 a year, or $4,950 a month
Actual spend less the capital item = 612,000 − 27,000 = $585,000
Add one year's amortisation = 27,000 ÷ 10 = $2,700
Recoverable CAM = 585,000 + 2,700 = $587,700
Admin fee = 587,700 × 10% = $58,770, total pool $646,470
Recoverable CAM came in 8.8 per cent above budget. Some leases also let the landlord charge interest on the unamortised balance of a capital item; this one does not.
Tenant A's actual share = 646,470 × 10.0% = $64,647
Balance due = 64,647 − 59,400 = $5,247
Excel: =(Actual-Capital+Capital/Life)*(1+AdminFee)*TenantSF/GLA-Monthly*12
Per square foot, tenant A budgeted $9.90 and the year cost $10.77. The $5,247 is about $437 for each month the estimate was too low, which is why a large reconciliation bill is usually a sign that the estimate itself should change.
Tenant B took occupation on 1 April and paid nine monthly estimates. Its share of the year's actual pool is prorated by days in occupation, not by months.
Monthly estimate = 594,000 × 7.5% ÷ 12 = $3,712.50; paid 9 × 3,712.50 = $33,412.50
Full-year share = 646,470 × 7.5% = $48,485
Prorated share = 48,485 × 275 ÷ 365 (75.3%) = $36,530
Balance due = 36,530 − 33,412 = $3,117
Prorating by days assumes costs fell evenly across the year. A landlord who instead charges B for costs actually incurred after 1 April can produce a different figure in either direction, for example if the resurfacing was done in February. The lease should say which method applies; most say nothing.
| Treatment of the $27,000 resurfacing | Recoverable CAM | Tenant A's share | Balance due |
|---|---|---|---|
| Expensed in full | 612,000 | 67,320 | 7,920 |
| Amortised over 10 years | 587,700 | 64,647 | 5,247 |
| Excluded as capital | 585,000 | 64,350 | 4,950 |
Expensing a capital item in the year it is paid raises tenant A's balance by half compared with amortising it, and a tenant whose lease ends next year pays for a car park surface that will last another nine.
| Actual vs budget | Recoverable CAM | Tenant A's share | Balance due (credit) |
|---|---|---|---|
| −5% | 513,000 | 56,430 | (2,970) |
| 0% | 540,000 | 59,400 | 0 |
| +5% | 567,000 | 62,370 | 2,970 |
| +10% | 594,000 | 65,340 | 5,940 |
| +15% | 621,000 | 68,310 | 8,910 |
Every 5 per cent of overrun adds $2,970 to tenant A's bill. A capped lease limits that exposure on controllable costs; the CAM cap article shows how much the cap's drafting matters.
After reconciling, the landlord resets the monthly estimate. On actual recoverable CAM of $587,700 grown by 4 per cent, the new budget is $611,208, or $672,329 with the admin fee, and tenant A's monthly estimate rises from $4,950 to $5,603: $653 more a month, an increase of 13.2 per cent. The tenant feels the overrun twice in the same quarter: once as a lump sum and once in the new monthly figure.
The common mistake is to check only the arithmetic of the statement, the share times the total less the payments, and not the pool it starts from. The arithmetic is almost always right. The money is in the definitions: capital items expensed rather than amortised, an admin fee charged on costs the lease excludes from it, a denominator that shrinks when units are vacant. Ask for the general ledger detail behind the pool before paying, and keep the audit right alive; the CAM audit article prices what that right is worth.
Reconciliation is the tenant's pro rata share of the actual recoverable pool, plus the admin fee, less the estimates paid: $5,247 for tenant A here, and $3,117 for tenant B after prorating by days. Before paying, check the capital items, the admin fee base and the occupancy proration against the lease. The free workbook for this case and its working documents include the lease abstract to record those clauses. Figures are illustrative and this is not legal advice.
Whatever the lease says, commonly 90 to 120 days after the end of the expense year, with the tenant paying any balance within 30 days and any overpayment refunded or credited. Leases that set no deadline let a landlord bill late. In the illustrative case the 6,000 sq ft tenant owes $5,247, about $437 for each month of the year it was under-billed.
Its share of the actual annual pool is prorated by the days it was in occupation, and it is credited with the estimates it actually paid. In the illustrative case a 4,500 sq ft tenant from 1 April bears 75.3 per cent of its full-year share of $48,485, or $36,530, against $33,412 paid, so it owes $3,117.
Only as the lease allows. Many leases exclude capital expenditure, or allow it only amortised over its useful life. On the illustrative $27,000 resurfacing amortised over 10 years, the 6,000 sq ft tenant pays $64,647; with the cost expensed in full it would pay $67,320, and with it excluded, $64,350.
This article is one calculation from How to Read a Commercial Lease. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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