Landlord expense reconciliation is a routine process, but it can have serious financial implications for tenants. Property owners review expenses annually and pass applicable costs to tenants, often as part of a Common Area Maintenance (CAM) reconciliation or operating expense reconciliation. The details of these charges can be complex, and errors—or even deliberate overcharges—are not uncommon.
Understanding how these expenses are calculated, identifying potential discrepancies, and knowing how to dispute questionable charges can help tenants avoid unnecessary costs. This guide provides actionable strategies to approach reconciliation with confidence.
Reviewing the Reconciliation Statement
Landlords issue an annual reconciliation statement that breaks down expenses for common areas, maintenance, property taxes, insurance, and other shared costs. This document outlines what was estimated throughout the year versus the actual expenses incurred. If the actual costs exceed estimates, tenants may owe the difference. If the estimates were higher, landlords should issue refunds or credits.
Compare the Charges to Your Lease Agreement
Leases define what can and cannot be included in reconciliations. Tenants should compare the reconciliation
statement against lease terms, paying close attention to:
Inclusions and exclusions: Some leases prohibit certain administrative fees, capital improvements, or legal expenses from being passed on to tenants.
Pro-rata share calculations: If a property has multiple tenants, each tenant’s share should be based on their rented square footage relative to the entire property. Miscalculations in square footage allocation can lead to overbilling.
Caps on increases: Some leases have limits on how much operating expenses can rise year over year. If the
increase exceeds the cap, the overage may not be a valid charge.
Check for Double Billing
Landlords may charge for certain expenses twice, either by mistake or intentionally. This can happen when:
A management fee includes certain administrative costs, but those same costs appear as separate line items.
Tenant-specific charges also being factored into CAM charges.
Maintenance expenses are allocated incorrectly between CAM charges and a separate maintenance budget.
Request an itemized breakdown if the charges seem unclear.
Identifying Unreasonable or Inflated Charges
Certain expenses may be higher than expected, but that doesn’t mean they are justified. Some of the most common issues tenants encounter include:
Capital Expenditures Masquerading as Maintenance
Leases typically allow landlords to pass through operating expenses, not  capital expenditures. The difference is significant:
Operating expenses cover routine maintenance, landscaping, snow removal, and janitorial services.
Capital expenditures involve major upgrades or replacements, such as repaving a parking lot, installing a new roof, or upgrading an HVAC system.
Unless the lease explicitly permits these costs—or they are amortized according to lease terms—capital improvements should not be passed along to tenants.
Administrative Fees That Are Too High
Many leases allow landlords to charge an administrative fee, typically a percentage of operating expenses. Standard fees range from 5% to 15%, but some landlords attempt to charge more. If the fee seems excessive, it’s worth negotiating or challenging.
Pass-Through Charges for Landlord-Owned Services
Some landlords have in-house maintenance or property management companies and charge tenants for these services. While this is not inherently improper, the fees should be in line with market rates. If the landlord’s company charges significantly more than a third-party provider would, tenants should push back.
Utilities Allocation Issues
If utilities are shared among tenants, landlords may allocate costs based on square footage. This method is common, but it can be unfair if some tenants use significantly more electricity, water, or gas than others. Tenants in multi-tenant buildings should confirm whether sub meters are used or if the cost is allocated appropriately.
Challenging Discrepancies and Overcharges
Once potential errors or unreasonable charges are identified, tenants should take a structured approach to challenging them.
Request Supporting Documentation
Landlords should provide backup documentation, such as invoices, tax records, and maintenance contracts, to justify expenses. If they refuse, the lease may contain language requiring transparency.
Engage a Lease Audit Firm
For commercial tenants, hiring a lease audit firm can be a cost-effective strategy. These firms specialize in identifying overcharges and negotiating refunds. Some work on a contingency basis, meaning they only get paid if they recover savings.
Negotiate Before Paying
If discrepancies exist, tenants should attempt to resolve them before submitting payment. It is harder to recover funds after payment has been made. A formal dispute process should be outlined in the lease.
Leverage Lease Renewal as a Bargaining Tool
For tenants approaching a lease renewal, landlords may be more inclined to adjust disputed charges to
maintain a good relationship. Tenants can use renewal discussions as leverage to negotiate more favorable terms.
Preventing Future Issues
While reviewing annual reconciliations is critical, proactive steps throughout the lease term can prevent future disputes.
Request Estimated Budgets Early
Tenants should ask landlords for estimated budgets at the start of each year. Reviewing projections can help identify potential issues before they become major disputes.
Track Expenses Internally
Keeping an independent record of maintenance issues, service frequency, and utility usage allows tenants to compare their records with what appears on the reconciliation statement.
Negotiate Favorable Lease Terms
For those negotiating new leases, addressing reconciliation concerns in the lease itself can prevent future problems. Key provisions to negotiate include:
Expense caps: Limiting the annual increase in operating expenses.
Audit rights: Ensuring the ability to review supporting documentation.
Clarified exclusions: Specifying costs that cannot be passed through.
Landlord expense reconciliation can significantly impact a tenant’s bottom line. Reviewing statements carefully, questioning unclear charges, and negotiating unfair costs can lead to substantial savings. By staying proactive and informed, tenants can ensure they are only paying their fair share.