Recoverable vs. non-recoverable expenses: the list

A recoverable expense is one the lease allows the landlord to pass through to tenants as their share of operating the property; a non-recoverable expense is one the landlord bears alone. The lease decides, in two places: a definition of operating expenses that says what goes in, and a list of exclusions that says what comes out even if the definition would have caught it. The core of both is stable across office, retail and industrial leases. Routine maintenance, cleaning, common-area utilities, landscaping, security, insurance, taxes and a management fee are recoverable almost everywhere. Capital improvements, leasing commissions, tenant improvement costs, the owner’s own legal and financing costs, depreciation, ground rent and anything reimbursed from elsewhere are excluded almost everywhere.

Between the two lists is a band of items argued every reconciliation season: the roof repaired so extensively it was replaced, the parking lot resurfaced rather than sealed, the HVAC unit swapped rather than fixed, the capital project that lowers next year’s utility bill, the management fee computed on a figure the tenant thinks is too large, the administrative fee layered on top of it. For each there is a usual test — useful life, the accounting treatment, the lease’s own definition — and for some there is no industry standard at all, in which case the lease decides and the reconciliation records which reading it took. At Harbor Point Plaza the list takes $1,240,000 of posted expense to a $1,000,000 pool, and the worked example below shows which rows did it.

The master list

The table runs the common line items against three questions: is it usually recoverable, which QuickBooks Online account it sits in on the Harbor Point chart used across this site, and the note that decides the hard cases. “Usually” means what practitioner and law-firm lists agree on; the lease overrides every row.

The account column is doing a quiet job: it says the chart of accounts can carry most of this list. If each account falls wholly on one side of the recoverable line, the pool is a report filtered to a range of accounts and the exclusions are whole accounts rather than transactions picked out of a mixed one. The setup post covers laying the chart out that way; this post is about where the line goes.

Typically recoverable

Operating expense definitions in most lease forms describe the cost of operating, maintaining, repairing and managing the property, and then list examples. The list is not the definition; under most forms a cost that fits the description is in even if it is not named, which is why cost categories no lease anticipated — a cybersecurity contract for the building systems, enhanced cleaning during an outbreak — get argued under the general words rather than a specific line.

Taxes and insurance are recoverable nearly everywhere but are often handled as their own recovery line rather than inside CAM, especially in retail, and they are the two items most often placed outside any cap. Utilities for the common areas are recoverable; a tenant’s own suite utilities are metered, recovered under a separate clause, or included in a full-service arrangement, and the reconciliation has to know which. Management fees are recoverable under most leases subject to the limit discussed below, and on-site staff at the property manager level and below are recoverable where the lease allows personnel costs, allocated when the staff serve more than one property.

Typically excluded

The exclusions list in a negotiated office lease often runs to thirty items or more, all of them elaborations of a shorter set of principles.

• Capital improvements. Costs that create a new asset, extend the useful life of an existing one or materially increase its value are capital, and are excluded unless the lease allows them to be amortized into the pool. The amortization exception usually covers capital items required by a law enacted after the lease began and capital items that reduce operating expenses, often limited to the savings achieved. Where it applies, the amortization is a calculated line — cost divided by useful life, sometimes with interest at a stated rate — not the cash spent.
• Leasing costs. Commissions, tenant improvements and allowances, legal fees for lease negotiation, marketing of vacant space, buyouts and relocation costs are the cost of filling the building, not running it.
• The owner’s cost of capital and ownership. Mortgage principal and interest, loan fees, refinancing legal, ground rent, costs of selling or transferring the property, depreciation, and the owner’s entity-level accounting and tax work.
• Costs borne elsewhere. Anything reimbursed by insurance, a warranty, a condemnation award or a specific tenant, and the cost of services provided to one tenant that others do not receive.
• Costs of the owner’s own conduct. Fines, penalties, interest on late payments, legal costs of disputes with tenants or lenders, curing violations that existed when the lease began, and bad debt.
• Costs above the property. Executive salaries and overhead above the property manager level, corporate office rent, contributions, and other buildings the owner holds.

Marketing and advertising are excluded in office and industrial leases and treated separately in retail, where a promotional fund is its own charge. Ground rent is excluded because the tenant’s rent already pays for the land. Costs of other buildings are excluded because the tenant pays for the property it occupies, and the gray area is a campus where some costs — a shared parking field, a single landscaping contract — serve more than one building and have to be allocated before they can be recovered.

The gray areas, with the test for each

Each item below is argued every year somewhere, and for each there is a usual way to decide.

Roof repair or roof replacement

Patching, flashing, sealing and replacing damaged sections are repairs and go in the pool. Replacing the membrane across the whole roof, or the whole roof on one building, is capital. The test most leases use, explicitly or by reference, is whether the work extends the asset’s useful life beyond its original expected life or is a replacement rather than a restoration, which is also the test the accounting rules apply when deciding whether to capitalize. When the lease defines capital by reference to generally accepted accounting principles, the question is whether the owner capitalized it, and the books and the pool have to agree. Where a roof replacement is capital and the lease allows amortization only for cost-saving or code-required items, it never enters the pool; Harbor Point’s $180,000 roof on Building A is the example throughout this site.

Parking lot: sealcoat or resurfacing

Sealcoating, crack filling, restriping and pothole repair are maintenance. Milling and overlaying the surface, or full-depth reconstruction, extends the lot’s life and is capital. The middle case is a large overlay done once rather than patching done piecemeal; the practitioner position is that a landlord should not have to make basic repairs one pothole at a time to keep them recoverable, but should not upgrade the center at the tenants’ expense either. The test is the same as the roof, and the lease’s dollar threshold, where it has one, settles most of the rest.

HVAC: repair or unit replacement

Compressor, motor, control and refrigerant work is repair. Replacing a rooftop unit is capital, and if the lease allows amortization the annual amount is cost over useful life, with the lease or the owner’s depreciation schedule supplying the life. In multi-tenant buildings a unit may serve one suite, in which case the cost is that tenant’s under many leases and nobody else’s, and the reconciliation has to know which units serve which suites before it can classify the invoice.

Capital that reduces operating costs

An LED lighting retrofit, a building management system, a high-efficiency boiler. Most negotiated leases allow these into the pool by amortization, limited each year to the lesser of the amortized cost and the savings actually achieved, and the second limb is the hard one to administer, because it requires an estimate of what the expense would have been without the project. The test is the lease’s wording: if it allows “capital expenditures intended to reduce operating expenses” the intention suffices; if it allows them “to the extent of the savings”, the reconciliation needs a savings calculation, documented and repeated each year of the amortization period.

Management fee as a percentage of gross receipts

A management fee computed as a percentage of gross receipts is recoverable under most leases subject to a limit the lease states — a percentage of gross receipts or of operating expenses, with low single-digit figures common in published office lease forms and higher ones in retail. Two further questions get argued: whether the fee is computed on gross receipts including the recoveries themselves, which is circular, or on base rent only; and whether a fee paid to an affiliate of the owner is recoverable above what an unrelated manager would charge, which most negotiated leases say it is not. The reconciliation should show the fee, the base it was computed on, the percentage, and the limit, as four separate figures.

Administrative fee on top of the pool

Some leases, especially retail, allow an administrative fee computed as a percentage of the pool in addition to, or instead of, a management fee. Office tenants usually negotiate it out where a management fee is also charged, on the ground that it is the same cost twice. There is no industry standard for the percentage. Where the lease allows both, an admin fee on a pool that already includes the management fee is a fee on a fee, and the lease should say whether the admin fee base excludes the management fee; where it does not, record the reading taken.

Costs of contesting the tax assessment

The legal and consulting cost of appealing the property tax assessment is recoverable under most leases that address it, on the reasoning that a successful appeal reduces a recoverable expense, and it is often limited to the saving achieved. The owner’s general legal is not. The two need different accounts, which is why 7200 Professional Fees on the Harbor Point chart holds the refinancing legal and the tax-appeal work needs an account inside the recoverable range.

Security deposits, bad debt and uncollected rent

None of these is an operating expense. A security deposit is a liability. Bad debt is the owner’s credit loss on a tenant who did not pay, and passing it to the tenants who did is excluded in nearly every negotiated lease and in the published exclusion lists. A vacant suite’s share of costs is handled by the gross-up and the denominator, not by a write-off charged to the pool.

Retail and industrial

Retail leases carry two items office leases do not. The first is a promotional or marketing fund — historically a merchants’ association, now usually landlord-run — to which the tenant contributes a stated amount, often per square foot with its own escalation, and which pays for center-wide advertising and events. It is its own charge, separate from CAM, and the landlord’s advertising of vacant space goes into neither. The second is a denominator question: whether anchors, outparcels and vacant space are in the denominator when the in-line tenant’s share is computed, which changes every share without changing a single expense. Retail CAM also includes items — parking field lighting, seasonal decorations, the food-court cleaning contract — that an office list would not name, and the lease’s inclusion list governs.

Industrial leases are often single-tenant and triple-net, in which case the tenant pays all operating costs and the exclusion list is short. In multi-tenant industrial, the argued items are the ones that serve some tenants and not others: a truck court used by the tenants with dock doors on it, a rail spur that serves one building, a shared yard. There is no industry standard for allocating these; the lease assigns the cost to the tenants who use the area, allocates it by a stated method, or puts it in the common pool, and where it is silent the reconciliation picks a reading, records it, and applies it consistently.

Harbor Point Plaza, worked

The 2026 Profit and Loss Detail for Harbor Point, filtered to the operating range, totals $1,240,000. Applying the list produces the pool.

The items that stayed in are as important as the ones that came out. The management fee in 6900 stayed, because the leases allow it and it is within the stated percentage. Insurance stayed and was treated as fixed for the gross-up. The repairs in 6800 other than the roof — about $60,000 of HVAC service, plumbing and door repairs — stayed, because none of them replaced a unit. Had the leases allowed amortization of capital and the roof qualified, which a roof does not, $180,000 over a twenty-year life would have added $9,000 to the pool rather than $180,000. On Brightleaf Yoga’s 8.00% share the exclusions are worth $19,200; without them its gross share would have been computed on $1,315,000 after gross-up rather than $1,075,000.

From $1,000,000 the sequence continues: variable expenses of $400,000 grossed up to $475,000, fixed $600,000 unchanged, pool $1,075,000, Brightleaf’s share $86,000, less its 2023 base-year share of $74,000, recoverable $12,000. The calculator runs that chain on your own pool.

What makes the next one easier

Almost every row in the master table can be decided once. The recoverable accounts are a range; the excluded accounts are outside it; capital goes to 1540 on the day the invoice arrives rather than being found in 6800 in February. The gray areas cannot be decided once, because each is a judgment on a specific invoice, but the rule for each can be — the useful-life test, the dollar threshold, the savings limit on amortized capital, the base for the management fee — and written down where the bookkeeper sees it when posting. The exclusion schedule then cites a rule and a lease section for every line, and the tenant’s auditor, who will ask for exactly that, gets a document rather than an explanation.

Related reading

• What a CAM reconciliation actually involves — the exclusions as step two of the full sequence.
• A QuickBooks Online setup for CAM recovery — the chart of accounts that carries this list.
• CAM caps: cumulative, non-cumulative and compounding — the controllable split applied to the recoverable pool.
• The CAM reconciliation checklist — step 5, the exclusion schedule, on the calendar.