CAM reconciliation example: one tenant's true-up, worked by hand

The easiest way to learn CAM reconciliation is to watch one tenant's bill get built. This guide works a single example from the pool totals to the final balance, then changes the example three ways: a cap, a gross-up and a partial year. All the names and figures are made up, chosen so the arithmetic is easy to follow. Your lease terms will differ, and your lease always controls.

The setup

A retail center has 40,000 square feet of gross leasable area. The general ledger for the year, sorted into pools, totals:

Our tenant, a salon, rents 2,000 square feet under a lease that bills square-foot share of all four pools, plus a 10% administrative fee on controllable CAM. Its landlord billed estimates of $1,200 a month, $14,400 for the year.

Step 1: the share

Share = tenant square feet divided by gross leasable area.

2,000 / 40,000 = 5.0%

Step 2: the tenant's portion of each pool

Step 3: the administrative fee

10% of controllable CAM: 10% x $6,000 = $600.

Step 4: the total due

$15,000 + $600 = $15,600.

Step 5: the true-up

Total due $15,600 minus estimates billed $14,400 = $1,200 balance due from the tenant.

If the total due had been $13,000, the answer would have been negative, a $1,400 credit. The sign is the whole difference between a bill and money owed back, so label it clearly in the letter.

Variation 1: a cap

Suppose the salon's lease caps controllable CAM at 5% growth a year, non-cumulative. Its capped controllable share last year was $5,600.

• Cap for this year: $5,600 x 1.05 = $5,880
• Actual controllable share: $6,000
• Charged: the lower, $5,880 (the cap saved the tenant $120)

The administrative fee now depends on the lease wording. If it is charged on the capped controllable amount: 10% x $5,880 = $588.

New total: $5,880 + $3,000 + $4,500 + $1,500 + $588 = $15,468. Minus $14,400 billed = $1,068 due.

Notice the cap affects only the controllable pool. Taxes and insurance still pass through in full unless the lease also caps them. A cumulative cap would work differently: it lets unused room from earlier years carry forward, either added up simply or compounded. Which kind your lease has depends on its exact words.

Variation 2: a gross-up

Some leases allow the landlord to adjust variable expenses, such as utilities and trash, as if the property had been fuller. Suppose $20,000 of the property's variable expenses were incurred while the center averaged 80% occupied, and the lease grosses up to 95%.

• Grossed-up amount: $20,000 x 95 / 80 = $23,750
• Tenant's 5.0% share of it: $1,187.50, instead of $1,000

The adjustment only goes up, never down: if the center were 97% occupied against a 95% clause, no gross-up applies. The lease also decides which accounts count as variable.

Variation 3: a partial year

If this same tenant had moved in on April 1, it was in place for 275 of 365 days (April through December).

$15,000 x 275 / 365 = $11,301.37

The estimates billed would be for the months it actually paid, not twelve months. Check that the rent roll figure for estimates matches what was billed, particularly in a move-in year.

What the letter has to show

A tenant who receives only "balance due: $1,068" will call. A letter that lets them follow the example above will usually end the call before it starts. Show:

1. The period and the property
2. The tenant's share and how it was found
3. Each pool's property total and the tenant's portion
4. Any cap, exclusion or gross-up applied, with the amounts
5. The administrative fee and what it was charged on
6. Estimates billed
7. The balance due or credit

For the writing, see the CAM reconciliation letter guide.

Common mistakes the example is built to avoid

• Dividing by the wrong area. Use the denominator the lease states, which may not be the building's actual area.
• Capping the wrong pool. Caps often apply to controllable expenses only.
• Rounding too early. Round each line to cents once, so the lines add up to the total.
• Using the rent roll's estimate instead of the amount billed. They differ when a tenant paid irregularly or started mid-year.
• Mixing up the order. Exclusions, then gross-up, then share come first. Leases differ on whether the base year comes before or after the cap and fee, and for a lease with both the two give different totals. Follow the lease's wording and write the order down.

Doing this for every tenant

The arithmetic above is one tenant. A center has several, each with a different cap or exclusion, and a portfolio has several centers. CAM Rec runs the same steps for every lease, in this order: pool totals from your ledger export, exclusions, gross-up, share, cap, administrative fee, base year or expense stop, and estimates, with each step stored as a line you can open. The cap and the fee come before the base year because leases usually define them on the tenant's share of the costs; the base year then says how much of that total the tenant pays. For a lease with both a base year and a cap, check that this is how your lease reads, because the two orders give different totals. The sample, on a fictional six-tenant strip center, lets you change a cap, an admin fee and a gross-up level and watch the true-up change, with no sign-up.

Related: the full CAM reconciliation process in order, how the denominator is chosen in pro rata share calculation, and the CAM reconciliation template for setting this up in a workbook.

This is general information, not legal or accounting advice. Your own lease governs every term in the example.