Standard CAM Exclusions: What Tenants Should Not Pay For

Exclusions are the costs a lease says a tenant does not pay for. They are negotiated once, applied every year, and are among the first things a tenant auditor examines.

The standard list

Most well-drafted commercial leases exclude:

Capital and structural

• Capital improvements, unless amortized and specifically permitted
• Structural repairs to foundation, roof, and load-bearing elements
• Replacement of major building systems, as distinct from maintenance

Landlord business costs

• Leasing commissions and marketing
• Legal fees, particularly disputes with other tenants
• Costs of selling, financing, or refinancing the property
• Ground rent and debt service
• The landlord own corporate overhead beyond the stated management fee

Recovered elsewhere

• Costs reimbursed by insurance proceeds
• Costs recovered from a specific tenant directly
• Costs recovered under warranty or from a contractor

Tenant-specific

• Services provided only to particular tenants
• Build-out and improvement costs for other tenants
• Costs arising from another tenant negligence

Other

• Fines and penalties from landlord non-compliance
• Costs of correcting pre-existing code violations
• Charitable and political contributions

The capital exclusion is the contested one

Capital versus maintenance is the most frequently disputed line in CAM, because the distinction is genuinely blurry and the amounts are large.

Replacing a failed rooftop HVAC unit: capital, or maintenance? Resurfacing a parking lot? Replacing lighting with LED fixtures?

Better leases address this directly. Common approaches:

• Amortization. Capital costs are recoverable but amortized over the useful life at a stated interest rate, so the tenant pays only the portion attributable to its occupancy.
• Savings test. Capital improvements are recoverable only to the extent they reduce operating expenses, capped at the actual savings.
• Compliance carve-out. Capital required by laws enacted after the lease date is recoverable; correcting pre-existing conditions is not.

A lease that simply says “capital improvements are excluded” leaves the categorization argument for later, and later is during a reconciliation dispute.

Itemize them

A single lump-sum exclusions line is the fastest way to invite an audit finding. “We backed out about thirty thousand of capital” is not an answer to “which items, and why.”

Record each excluded item with the amount and the reason. This costs nothing at the time and is the difference between a five-minute audit response and a week of reconstruction.

It also matters for the gross-up calculation, which applies to the pool after exclusions. If the exclusions are not itemized, the variable portion of the remaining pool cannot be established defensibly either.

The administrative fee question

Whether the administrative or management fee is calculated before or after exclusions, and whether it applies to taxes and insurance, is worth stating explicitly. Leases are frequently silent, and the difference on a large pool is not trivial.

Where exclusions sit in the order

Exclusions come out immediately after pool actuals, before everything else:

1. Pool actuals
2. Less exclusions
3. Gross-up
4. Administrative fee
5. Tenant share

Everything downstream depends on getting this step right, which is why it deserves the itemization. See how the sequence runs in the CAM reconciliation calculator.