CAM Estimates and True-Ups: Getting the Cash Flow Right

CAM recovery runs on estimates. You bill a monthly figure through the year, then reconcile against actuals. Setting that estimate well is an underrated skill, and getting it wrong creates problems in both directions.

How estimates are set

The conventional approach is prior-year actuals plus an inflation assumption, divided by twelve and allocated by pro-rata share.

Refinements worth making:

• Known changes. A new service contract, a tax reassessment, or an insurance renewal you already know about should be in the estimate rather than discovered at reconciliation.
• Occupancy changes. If the building is filling, variable costs rise. If gross-up applies, the effect on the tenant charge is muted but not eliminated.
• Capital timing. Amortized capital recoveries starting mid-year change the run rate.

Estimating too low

Under-estimating feels tenant-friendly and is not.

It means you fund operating expenses out of pocket through the year and recover them in one lump at reconciliation. Your cash flow suffers, and the tenant receives an unexpected bill — often a large one — months after the money was spent.

Large true-up bills are also the most disputed. A tenant who budgeted $6.40 per square foot and receives a bill implying $8.10 will scrutinize the reconciliation in a way they would not have scrutinized a modest one. Under-estimating is, in practice, the most reliable way to trigger a CAM audit.

Estimating too high

Over-estimating strains tenant cash flow and generates credits at reconciliation. Credits are administratively awkward — they have to be issued, applied, and tracked, and a tenant who overpaid all year has a legitimate complaint.

Persistent over-estimation also damages trust in a way that makes the next genuine increase harder to explain.

Aim for slightly under

The pragmatic target is an estimate that lands slightly below actual, producing a modest balance due rather than a credit.

A small balance is easier to collect than a credit is to administer, and it avoids the appearance of holding tenant money through the year. “Slightly” is doing real work in that sentence — a true-up within roughly 5% of the estimate is normal and rarely contested.

The true-up

At reconciliation, estimates already billed are netted against the billable amount:

net = billable - estimates billed

Positive is a balance due. Negative should be issued as a credit memo, not posted as a negative charge.

That distinction matters for the ledger. A negative charge muddies AR aging and makes it unclear whether the tenant owes money, is owed money, or has an unapplied credit. A credit memo is an explicit instrument with its own trail, and it can be applied against future charges cleanly.

Resetting the estimate

The reconciliation is also when next year estimate should be reset. Rolling forward last year estimate when actuals came in 12% higher guarantees a large true-up again.

Reset from actuals, not from the prior estimate. This sounds obvious and is very commonly skipped, because the estimate lives in a billing schedule and the actuals live in the reconciliation, and nothing connects them unless someone does it deliberately.

Mid-year lease changes

A lease starting or ending mid-period complicates the netting. The reconciliation should run for the period the lease was actually in effect, with estimates counted only for months billed.

Prorating annual actuals by month is usually acceptable, though a lease that started in November of a year with heavy December snow removal has a reasonable argument against a flat twelfth. Where the lease is specific, follow it.

See how estimates and credits flow through in CAM reconciliation software.