CAM reconciliation for small shopping centers

A CAM reconciliation settles what each tenant owes for the center's operating costs for the year. Tenants pay monthly estimates during the year. After year end, the owner totals the actual costs, calculates each tenant's share under its lease, and bills or credits the difference. Lease terms can change the calculation from one tenant to the next.

What the NNN pass-throughs cover

NNN refers to the three costs a net lease passes through to tenants: property taxes, the owner's property insurance, and common area maintenance (CAM). CAM is the cost of running the shared parts of the center, such as parking lot sweeping and repair, landscaping, exterior lighting, common area utilities and the management of all of it. Each lease has its own list of costs. Start with the definitions section. For certain small tenants, California now adds a statutory definition of "building operating costs" in Civil Code section 1950.9, covered further down.

Estimates during the year, actuals after it

Most retail leases have the tenant pay one twelfth of an estimated annual NNN charge with each month's rent, based on a budget or last year's actuals. After year end, the owner compares each tenant's share of actual costs with what it paid. An underpayment becomes a balance due and an overpayment becomes a credit.

A shopping center lease that Natural Grocers filed with the SEC in May 2025 shows how this is written. The landlord must deliver the reconciliation within 120 days after each lease year, the tenant pays any shortfall within 30 days, and an overpayment is offset against the tenant's next payments, or refunded if the term has ended.

How pro rata share is calculated

The usual formula is the tenant's GLA divided by the GLA of the center, or of the part of the center that shares a given cost. The Natural Grocers lease divides the premises (17,955 SF of leasable floor area) by the shopping center (50,014 SF) and states the result as a 35.9 percent share.

How the space was measured matters too. BOMA International publishes a retail measurement standard (ANSI/BOMA Z65.5-2025). Some leases point to a standard and some state a fixed figure. Use what each lease says and keep the center total consistent across tenants.

Leased area or leasable area

The denominator affects how much each tenant pays. A leasable-area denominator counts every suite whether occupied or not, so the owner pays the share for vacant space. A leased-area denominator counts only suites under lease, so a vacancy raises everyone else's share. In the illustrative center below, if the 4,000 SF suite sat empty all year, Tenant D's share would stay at 15 percent on a leasable basis and rise to 18.75 percent (3,000 divided by 16,000) on a leased basis. The lease controls.

Pads and anchors that pay their own way

A pad on its own tax parcel, or an anchor that maintains and insures its own parcel, is often taken out of the pool for the costs it pays directly. The Natural Grocers lease says that if a building or parcel is separately maintained, insured or taxed outside the NNN program, the tenant's share is figured without those costs and areas. A center can have different shares for different costs.

Gross-up for occupancy

Some leases let the owner gross up variable costs, which change with occupancy, to an occupancy level named in the lease. An illustrative case: the center is 75 percent occupied and trash costs $9,000. Grossed up to full occupancy, trash is treated as $12,000, and each occupied tenant pays its share of that over the full leasable area. Together the occupied tenants pay 75 percent of $12,000, which is the $9,000 actually spent. A gross-up should recover actual cost and no more, and it applies only if the lease allows it.

Lease provisions that change the math

Caps on controllable expenses

Some retail leases cap the yearly increase in controllable CAM (costs the owner can influence) and leave taxes and insurance outside the cap. The Natural Grocers lease limits the tenant's share of controllable costs to the lesser of its actual share or 103 percent of the prior year's share, and it leaves real estate taxes, the landlord's insurance and snow removal out of the controllable category.

Whether the cap is cumulative changes the result. Take an illustrative tenant with a 5 percent cap and a $10,000 controllable share in year one, with flat costs in year two. A non-cumulative cap measures against the year before, so the year three cap is $10,500. A cumulative cap compounds from year one, so it is $11,025 ($10,000 times 1.05 times 1.05). If year three costs come to $11,000, the first tenant pays $10,500 and the second pays $11,000. The amount above a cap stays with the owner. It cannot move to other tenants, because their leases fix their shares.

Admin and management fees

Many leases allow an administrative fee stated as a percentage of CAM or as a flat amount. The Natural Grocers lease uses a flat $4,000 a year and bars other management and overhead charges. Check whether each lease applies the fee to CAM only or to taxes and insurance too, whether it is figured before or after a cap, and whether a manager's fee is already inside CAM.

Base years in modified gross leases

Some smaller tenants are on modified gross leases and pay their share of increases over a base year, usually the year the lease started. A low base year makes every later increase look larger, which happens when the base year had high vacancy and no gross-up, or when a sale reassesses taxes in a later year.

Capital items and other exclusions

Most leases exclude capital expenditures or allow them only as amortized over their useful life. The Natural Grocers lease amortizes them on a straight-line basis and charges only each year's portion. Its exclusions also include leasing commissions, the landlord's debt service, ground rent, the landlord's own fines and costs reimbursed to the landlord. Parking lot resurfacing and roof replacement are the usual test cases.

Audit rights and the audit window

Most retail leases let tenants review or audit the owner's records within a set period after the statement arrives, and many make the statement final if no objection comes in time. The Natural Grocers lease allows one audit a year. If it finds an overcharge of more than 2 percent of the amount actually owed, the landlord pays the reasonable audit cost and credits or refunds the overpayment within 30 days.

Property taxes and Prop 13 after a sale

Under Article XIII A of the California Constitution (Proposition 13), the general property tax is limited to 1 percent of full cash value plus voter-approved debt, and the value base can rise no more than 2 percent a year for inflation. A change in ownership resets it. Revenue and Taxation Code section 60 defines that as a transfer of a present interest in real property whose value is substantially equal to the fee interest, and under section 75.10 the assessor reappraises the property at full cash value as of that date. Acquiring control of the owning entity (more than 50 percent of a corporation's voting stock, or a majority interest in a partnership or LLC) can also count under section 64(c). The BOE explains that the new value arrives as a supplemental assessment for the rest of the fiscal year, and that a change between January 1 and May 31 produces two. The lease determines whether tenants pay the increase.

The tax bill also runs on a fiscal year. For FY 2025-26, the Orange County Treasurer-Tax Collector listed the first installment as due November 1, 2025 and the second due February 1, 2026, so a calendar-year reconciliation touches two tax bills plus any supplementals. The November 1 and February 1 due dates are set by state law (Revenue and Taxation Code sections 2605 and 2606), so they apply in Los Angeles County as well, and the Los Angeles County Treasurer and Tax Collector lists the same dates. Use the method the lease supports and use it the same way every year.

A worked example for a four-tenant center

Every number in this example is illustrative, not market data.

The center has 20,000 SF of GLA and four tenants, fully leased all year, so the leased and leasable denominators match. Estimates were set from a budget of $9.00 per SF, except Tenant D, which signed late in the prior year and pays the $11.00 per SF estimate quoted in its lease. The admin fee is 10 percent of CAM and is not charged on taxes or insurance. Tenant B's lease caps controllable CAM (here, CAM plus the admin fee) at 5 percent over its prior-year controllable share, non-cumulative. Last year's controllable pool was $100,000.

Center expense pool (illustrative)

Tenant reconciliation (illustrative)

Tenant B's prior-year controllable share was 25 percent of $100,000, or $25,000, so its cap is $26,250. Its actual controllable share is 25 percent of $110,000, or $27,500, which is $1,250 over. Taxes ($15,000) and insurance ($7,500) are outside the cap, so B owes $48,750. The owner absorbs the $1,250, which is why collections total $198,750 against $200,000 of cost. Tenant D's estimate ran above actual, so it gets a $3,000 credit. The same statement should reset everyone's estimates for the new year closer to the $10.00 actual.

A timeline that gets it done on time

The lease sets the deadline. The Natural Grocers lease uses 120 days. Some leases say a late statement waives the owner's right to collect. Working back from an end-of-April deadline for a calendar year:

• January. Close the books. Gather invoices, the general ledger, both tax installments and any supplemental bills, insurance invoices and common meter bills, plus a current rent roll with square footage.
• February. Build the pools, remove exclusions, amortize capital items and compute shares. Apply each tenant's cap, admin fee rule and base year.
• March. Check each statement against that tenant's lease, tie the total to the ledger and set new monthly estimates.
• April. Deliver statements with backup before the deadline, then collect balances and apply credits as the lease directs.

Small tenants and Civil Code 1950.9

Section 1950.9 protects a "qualified commercial tenant," meaning a microenterprise, a restaurant with fewer than 10 employees, or a nonprofit with fewer than 20 employees, that has also given the landlord written notice of its status and a self-attestation of its employee count (for a lease, at signing and annually after). A microenterprise under Business and Professions Code section 18000 has five or fewer employees including the owner and generally lacks sufficient access to capital. The section covers leases signed or renewed on or after January 1, 2025, month-to-month tenancies, and older leases with no operating cost provision.

For those tenants, costs must be allocated proportionately and must have been incurred within the previous 18 months or be reasonably expected within the next 12. They cannot include costs the tenant paid directly to a third party or costs someone else reimbursed. The landlord must give notice before signing that the tenant may inspect supporting documentation, must provide it within 30 days of a written request, and cannot charge the costs until it does. Supporting documentation means dated, itemized quotes, contracts, receipts or invoices, with a tabulation of the allocation and a signed, dated landlord attestation. The landlord also cannot change the allocation method to raise the tenant's share without written notice and documentation. A tenant can raise a violation as a defense in an eviction for unpaid operating costs, and a waiver is void. A reconciliation sent long after year end risks reaching past the 18-month window for the year's earliest costs.

Common mistakes

• Using a denominator the lease does not allow, or square footage that is stale after suites were combined or split.
• Expensing a capital item in one year when the lease requires amortization.
• Charging the admin fee on taxes and insurance when the lease limits it to CAM, or on top of a management fee already in CAM.
• Missing a cap, or treating a cumulative cap as non-cumulative.
• Leaving a self-maintained pad in the shop tenants' pool.
• Grossing up so that tenants together pay more than actual cost.
• Missing a supplemental tax bill, or a refund after an assessment appeal.

How tenants check and dispute a bill

Start with the lease: the cost definition, exclusions, pro rata share, any cap, the admin fee and the audit deadline. Then confirm the square footage and denominator, recompute the share, and compare each cost line with last year's. Ask about large increases in repairs, management or insurance.

If something looks wrong, ask in writing within the audit window for the ledger detail, invoices, tax bills and insurance invoices behind the numbers. A qualified commercial tenant can also request supporting documentation under section 1950.9. Check whether the lease requires paying the billed amount while the review is open, and how it handles a refund and the audit cost if an overcharge turns up.