5 Costs Commercial Landlords Forget to Pass Through to Tenants
Money quietly leaking out of your net operating income because these costs never made it into the lease language.
What's inside 10 sections
Quick answer: Property tax reassessment jumps, capital expense amortization, property management fees, common area utility costs, and administrative or accounting fees tied to CAM reconciliation itself are the costs landlords most often forget to explicitly capture in their lease language — and every one of them quietly eats into net operating income when they're missed.
I review a lot of commercial leases where the landlord is leaving real money on the table, not because of a bad deal, but because the pass-through language simply didn't anticipate a cost category that later became significant. Here's what to check for before you're the one absorbing costs your lease should have been passing through all along.
1. Property Tax Reassessment Increases
Property taxes can jump significantly after a reassessment, sometimes tied to a sale of the property itself, a change in local tax rates, or a broader area-wide reassessment cycle. If your lease's tax pass-through language doesn't clearly cover reassessment-driven increases, and only references a base or estimated figure, you can end up absorbing a real increase yourself instead of passing it through as the lease structure was intended to allow. See the IRS's guidance on rental real estate income, deductions, and recordkeeping for the source data behind this.
2. Capital Expenses Without Amortization Language
A new roof or a major HVAC system replacement is a capital expense, and many leases either exclude these from CAM entirely or require they be amortized over the item's useful life rather than passed through as a lump sum in the year incurred. If your lease is silent or vague on this, you may find yourself unable to recover a legitimate, necessary capital cost at all, simply because the pass-through language wasn't specific enough when it was drafted. For the primary source behind this, the SBA's business guide is worth checking.
3. Property Management Fees
A property management fee — commonly a percentage of gross rents or total operating expenses — is a real and reasonable cost of operating a commercial property, but it needs explicit lease language to be includable in CAM charges billed to tenants. Landlords who assume this is automatically covered without the specific language in place often end up absorbing this cost themselves. This connects with negotiating a commercial lease renewal, worth reading if you're weighing that angle too. For the fuller version of this specific question, see red flags in a commercial lease.
| Forgotten Cost | Fix |
|---|---|
| Property tax reassessment increases | Ensure pass-through language covers actual, not just estimated, tax bills |
| Capital expenses | Add specific amortization language for capital items |
| Property management fees | Explicitly include a management fee provision in CAM |
| Common area utilities | List utility categories explicitly rather than a general reference |
4. Common Area Utility Costs
Shared lighting, common area HVAC, and irrigation for landscaped areas are all real utility costs that should generally be part of CAM, but they're easy to leave out if the lease's utility language is vague or references only "utilities" without specifying which common area costs are included. Be specific in the lease about exactly which utility categories are passable, rather than relying on a general catch-all term that can be disputed later.
5. Administrative Costs of CAM Reconciliation Itself
Preparing the annual CAM reconciliation — gathering invoices, calculating each tenant's proportional share, producing the actual statements — takes real time and sometimes accounting or bookkeeping cost. Some leases explicitly allow a small administrative fee within CAM to cover this; many don't even address it, meaning the landlord absorbs this ongoing administrative cost with no ability to recover it. We go deeper on how much you should actually spend on rent in a separate guide, worth a look if it's relevant here.
Review your standard lease template and any active leases at each renewal cycle specifically for these five gaps. It's a much easier fix to update the language going forward than to try to recover a cost retroactively that your existing lease simply never gave you the right to pass through in the first place.
Insurance Deductibles and Claim-Related Costs
Beyond the base insurance premium, some leases fail to address who's responsible for the deductible portion of a claim on shared building systems, or costs related to increased premiums following a claim history. Clarify in the lease whether these specific costs are included in the standard insurance pass-through or treated separately, since a large deductible on a shared-system claim can be a significant unplanned cost if the lease language doesn't clearly assign it.
Vacancy Cost Allocation in Multi-Tenant Buildings
In a multi-tenant building, check how your lease allocates CAM costs when the building has vacant space — some leases require the landlord to absorb the vacant unit's proportional share rather than passing that burden onto occupied tenants, while others don't address this clearly at all. A building with meaningful vacancy and lease language that shifts that cost onto remaining tenants can result in existing tenants effectively subsidizing the landlord's unfilled space, which is worth understanding clearly, from either side of the lease, before signing or renewing.
Regularly Auditing Your Own Pass-Through Practices
Beyond fixing the lease language itself, periodically audit whether you're actually capturing every pass-through you're legally entitled to under your existing leases. It's common for a landlord to simply forget to include a legitimate cost in a given year's CAM reconciliation, not because the lease doesn't allow it, but because the internal tracking process missed it. A yearly review comparing your actual operating expenses against what's been billed to tenants catches these gaps before they compound across multiple years of underbilling.
New Cost Categories That Older Leases Didn't Anticipate
Costs that weren't a meaningful category when a lease was originally drafted years ago can become significant later — enhanced security systems, updated fire and life-safety compliance requirements, or new environmental compliance costs are all examples of categories that have grown in relevance over recent years. If your standard lease template hasn't been updated in a while, review whether it still reflects the actual cost categories relevant to operating your specific type of property today, rather than assuming the original drafting anticipated every cost category you're now actually incurring.
Communicating Pass-Through Changes to Tenants Clearly
Even when your lease language properly supports a cost pass-through, communicating any significant increase clearly and with adequate explanation to tenants reduces disputes and maintains a better ongoing relationship. A brief cover note with the annual CAM reconciliation explaining what drove a notable increase — a tax reassessment, a specific capital project, a jump in insurance premiums — goes a long way toward tenants accepting a legitimate charge rather than assuming it's an error or an attempt to overcharge them.
Getting pass-through language right protects your net operating income exactly the way it's meant to, and it does so without needing to be aggressive or adversarial toward tenants — clear, well-drafted lease language benefits both sides by setting expectations everyone can actually plan around.
Take the time to get this right in your next lease or renewal, and you'll spend a lot less time each year explaining and defending charges that should have simply been built into the lease from the start.
A well-drafted lease pays for itself many times over across its term, and the cost categories covered here are exactly the ones worth getting an attorney's eyes on before your next lease goes out for signature.
