What Expenses Should Be Excluded from CAM?
A commercial real estate guide to identifying exclusions accurately, protecting recovery, and avoiding tenant disputes.
Knowing what to exclude from CAM is just as important as knowing what to include.
Exclude too much, and the owner absorbs costs the leases may have allowed the property to recover. Exclude too little, and tenants may be billed for expenses their leases do not permit, creating disputes, audits, credits, and refunds.
The key is that CAM exclusions are determined lease by lease, not property-wide. A category excluded under one tenant’s lease may still be fully recoverable from other tenants at the same property.
What Does It Mean to Exclude an Expense from CAM?
Excluding an expense from CAM means keeping it out of the pool of costs that tenants reimburse for operating the common areas. Some costs are excluded because they are the landlord's responsibility by nature, some because a lease specifically carves them out, and some because billing them would recover the same cost twice. The purpose of exclusions is to make sure tenants pay for the shared operating costs they agreed to pay for, and nothing more.
The most important thing to understand about exclusions is that they are governed by the lease, and leases differ. A cost that is excluded under one tenant's lease may be fully recoverable under another's. That means exclusion is not a single property-level decision. It is a tenant-level decision that has to be made against each lease. Treating it as a property-wide rule is where a great deal of avoidable under-recovery begins.
The rule that matters most: One tenant's exclusion should not become the rule for the entire center. If a category is recoverable from other tenants under their leases, it should stay in the recovery analysis and be allocated to them. The question is never only whether the center can recover a category. It is which tenants can be billed for it under their lease.
What Is Typically Excluded from CAM?
Exclusions fall into a few recognizable groups. The specific treatment always depends on the lease, but these are the categories that are most commonly excluded.
Landlord Costs
- Structural repairs and, in many leases, roof and foundation work, which are treated as the landlord's responsibility.
- Capital expenditures that the lease does not permit to be recovered.
- Debt service, ground rent, depreciation, and income taxes, which are ownership costs rather than operating costs.
- The landlord's corporate overhead and costs of owning the entity rather than operating the property.
Leasing and Transaction Costs
- Leasing commissions, marketing to lease vacant space, and tenant improvement costs for other tenants.
- Legal and professional fees related to lease negotiation, disputes, or the sale or financing of the property.
Duplicate-Recovery and Specific-Tenant Costs
- Costs reimbursed by insurance proceeds, warranties, or a specific tenant directly, which would otherwise be recovered twice.
- Costs that serve a single tenant's premises rather than the common areas.
Penalties and Negotiated Carve-Outs
- Fines and penalties resulting from the landlord's own violations, and bad debt.
- Negotiated exclusions specific to a lease, such as an excluded or capped management fee, promotional and marketing costs, or particular categories a tenant bargained out.
The first groups are excluded from most leases because of what the cost is. Negotiated carve-outs are where lease-by-lease variation lives, and where the tenant-specific rule matters most. One tenant's negotiated carve-out is not automatically the whole center's exclusion.
Why Exclusions Matter to NOI: The Two-Sided Risk
Exclusion errors reduce the owner's position in two opposite ways, and a strong process has to guard against both.
Over-Exclusion Is the Quiet Risk
When a property excludes a recoverable category, or excludes it center-wide because one tenant carves it out, the owner absorbs cost the leases would have let it recover. Nothing looks wrong. The reconciliation still ties out. The tenants who should have been billed simply are not, and the loss shows up only as a smaller recovery than the leases support.
Under-Exclusion Is the Loud Risk
When a property bills tenants for costs the leases exclude, such as a structural repair or a non-permitted capital item, it over-recovers. That creates tenant disputes, audit exposure, refunds, and a loss of credibility that can affect every future reconciliation. Overbilling is not a safer error than underbilling. It is simply a more visible one, and it can be more expensive once disputes and refunds are counted.
The goal is precision, not caution in one direction. A property protects NOI by recovering everything the leases allow and excluding everything they do not, tenant by tenant.
Financial Impact
Consider two illustrative errors on the same property. In the first, a category of promotional and marketing costs of about $4,400 is excluded from the entire center because the anchor and a pad tenant exclude it under their leases. But the inline tenants' leases include it. By removing it property-wide, the property gives away the inline tenants' share, an illustrative roughly $3,000 of recoverable income each year. At an illustrative 7 percent capitalization rate, that recurring under-recovery represents about $43,000 of value.
In the second, a structural roof repair of about $12,000, a landlord-nature cost under the leases, is billed into CAM. A tenant audits the reconciliation, disputes the charge, and the property issues credits of about $8,000 across the pool, plus the cost and friction of the dispute. One error quietly reduced recovery. The other loudly created a refund and a dispute. Both traced back to an exclusion decision that was not made against the leases tenant by tenant. These figures are illustrative and depend on the leases and the property.
Common Mistakes
- Letting one tenant's exclusion become the center-wide rule. Removing a category from the whole pool because one lease excludes it gives away recovery from every tenant whose lease includes it.
- Excluding for administrative convenience. Dropping a category because it is easier than tracking who owes it trades recovery for convenience.
- Billing landlord-nature costs into CAM. Passing through structural repairs, non-permitted capital, leasing costs, or debt service over-recovers and invites disputes.
- Confusing repair with replacement, or operating with capital. Misclassifying a capital replacement as a recoverable repair, or the reverse, produces both overbilling and under-recovery depending on the direction.
- Missing duplicate recovery. Billing costs that were reimbursed by insurance, a warranty, or a specific tenant recovers the same dollar twice.
- Not documenting the basis for each exclusion. An exclusion with no lease citation cannot be defended and tends to drift year to year.
Best Practices
The following are operational property management practices, not legal advice.
- Make exclusion a tenant-level decision. Test each category against each lease using an eligibility matrix, and keep a category in the analysis if any tenant's lease includes it.
- Exclude true landlord-nature costs consistently. Keep structural work, non-permitted capital, leasing and transaction costs, debt service, depreciation, fines, and bad debt out of the pool.
- Net out duplicate recovery. Remove costs reimbursed by insurance, warranties, or a specific tenant so no dollar is recovered twice.
- Separate specific-tenant costs from common-area costs. A cost that serves one tenant should be billed to that tenant, not the pool.
- Review repair versus replacement and capital versus operating against the lease before excluding or including the item.
- Document the lease basis for every exclusion. Include the section reference so the decision is defensible and durable.
- Update exclusions on every amendment. A negotiated carve-out can change what a tenant excludes.
Operational vs. legal note: Whether a specific cost is excluded under a given lease, particularly for capital, structural, and repair-versus-replacement questions, is a lease interpretation matter. Operational review can map the exclusions, but confirm ambiguous lease language with qualified legal counsel.
How This Connects to the RECOVER Method™
Deciding what to exclude is the work of Confirm Eligibility, a stage of the RECOVER Method, the framework from The CAM Recovery Blueprint by Lisa Shull, CPM. At that stage, the question is no longer whether the property incurred a cost. It is which tenants are actually obligated to pay for it and under what limitations.
A strong process resists the temptation to flatten differences for convenience, because it is easier to exclude a category entirely than to track who owes it, but that ease comes at the expense of recovery accuracy. Exclusion, done right, is eligibility work performed tenant by tenant.
The decision begins with Review the Lease, which captures each lease's exclusions and carve-outs, and it is supported by Evaluate Expenses, which identifies the landlord-nature costs that should be kept out of the analysis in the first place. Validate the Reconciliation then guards against the silent version of the error, checking that a category was not quietly dropped for the whole center when only one tenant excludes it.
Key Takeaways
- Exclusions matter as much as inclusions. Over-exclusion quietly costs the owner recovery, while under-exclusion loudly creates disputes and refunds.
- Commonly excluded costs include structural and non-permitted capital work, leasing and transaction costs, debt service and depreciation, duplicate-recovery costs, specific-tenant costs, fines, bad debt, and negotiated carve-outs.
- Exclusions are set lease by lease, so a category one tenant excludes may still be recoverable from every other tenant in the center.
- The most common leakage is letting one tenant's exclusion become the center-wide rule.
- The discipline is to decide exclusions tenant by tenant, exclude true landlord-nature costs consistently, net out duplicate recovery, and document the lease basis for each.
Frequently Asked Questions
What expenses are excluded from CAM in commercial real estate?
Commonly excluded costs include structural repairs and often roof and foundation work, capital expenditures the lease does not permit, leasing commissions and marketing for vacant space, tenant improvements for other tenants, debt service, ground rent, depreciation, income taxes, the landlord's corporate overhead, fines and penalties, bad debt, costs reimbursed by insurance or warranty, and negotiated carve-outs such as certain management or promotional costs.
Why are some expenses excluded from CAM?
Because CAM is meant to recover the shared cost of operating the common areas, not the landlord's ownership or transaction costs, and not costs already reimbursed another way. Some exclusions exist because of what the cost is, such as debt service or leasing commissions, and others exist because a specific lease negotiated the category out.
Are capital expenses excluded from CAM?
Often, but not always. Many leases exclude capital expenditures, while others permit recovery of defined capital categories, usually through amortization, such as cost-saving improvements or code-compliance work. Whether a capital item is excluded depends on the lease, so the capital log should be reviewed against each lease before an item is excluded or included.
Are structural and roof repairs excluded from CAM?
In many leases, structural repairs and roof and foundation work are treated as the landlord's responsibility and excluded from CAM, while routine repairs to common area components are recoverable. The line between a recoverable repair and an excluded structural or capital replacement is a frequent gray area that should be tested against the specific lease language.
Should a category be excluded center-wide if one tenant excludes it?
No. Exclusions are set lease by lease. If a category is recoverable from other tenants under their leases, it should stay in the recovery analysis and be allocated to them. Excluding it for the whole center because one lease carves it out gives away recovery the other leases support, which is a common and avoidable source of under-recovery.
What is the risk of billing excluded costs to tenants?
Billing costs the leases exclude over-recovers, which creates tenant disputes, audit exposure, refunds, and a loss of credibility that can affect future reconciliations. Overbilling is not a safer error than under-recovery. It is more visible and can be more expensive once disputes and credits are counted.
How are CAM exclusions different for each tenant?
Retail and mixed-use leases often vary meaningfully from one tenant to another. One tenant may exclude a management fee while another allows it, one may exclude promotional costs while another includes them, and anchors and pads frequently have broader exclusions than inline tenants. Because of this variation, exclusion has to be confirmed against each lease rather than assumed across the property.
How do you document a CAM exclusion?
Record each exclusion with the specific lease or amendment section that supports it, note whether it is a landlord-nature cost or a negotiated carve-out, and identify which tenants it applies to. Documenting the basis makes the exclusion defensible if a tenant questions the reconciliation and keeps the decision from drifting from year to year.