CAM and NNN Disputes in Texas: Common Area Maintenance, Triple Net Leases, and Pass-Through Disputes

Tenant-side audit firms have refined a playbook over the last fifteen years. Landlords who handle CAM reconciliations in-house, without understanding that playbook, give back money the lease actually entitled them to keep.

That’s the asymmetry behind most Texas CAM and NNN disputes. The sophisticated party is usually the tenant, who has hired a specialized audit firm on a contingency or success-fee basis. The unsophisticated party is often the landlord, who treats year-end reconciliation as a back-office accounting exercise rather than a contested legal process. The result is that landlords with strong CAM positions on paper concede ground at the audit stage because the audit findings are framed as routine accounting questions rather than as legal arguments.

This page is the landlord-side framework for handling CAM and NNN disputes: the basics for context, the dispute patterns that produce most of the litigation, and the audit-defense posture that protects the landlord’s position. We don’t spend significant time on tenant-side strategy; the audit firms do that work professionally on the other side, and a separate section on it here would be both incomplete and irrelevant to landlord counsel.

CAM and NNN basics (background)

In a Triple Net (NNN) commercial lease, the tenant pays base rent plus the three “nets”: real estate taxes, property insurance, and common area maintenance / operating expenses, plus typically utilities, the tenant’s own interior maintenance, and other tenant-specific costs. The structure gives the landlord a “net” return that approximates the base rent.

Variations include modified gross leases (landlord pays some operating costs, tenant pays the rest), full-service gross leases (rare in Texas commercial outside older office), and single-net or double-net structures (tenant pays only some of the nets).

CAM (or “operating expenses,” the terms are often used interchangeably) typically includes common area utilities, cleaning, maintenance, HVAC for common areas, property management fees (often capped), property insurance, real estate taxes, security and maintenance personnel, and common-area capital expenses where the lease provides. What’s typically excluded depending on lease drafting: costs of marketing or leasing the property, costs of disputes between landlord and other tenants, costs of major capital improvements (often excluded or capped), costs specific to other tenants, costs of structural repairs, and costs that primarily benefit the landlord rather than the property.

Each tenant pays a pro-rata share, typically calculated as the tenant’s leasable area divided by the property’s total leasable area. A 5,000 SF tenant in a 100,000 SF property has a 5% pro-rata share. Variations include gross-up provisions (treating the property as fully occupied to normalize fixed costs), anchor tenant exclusions in retail (which shift more CAM to smaller tenants), specific allocations based on use, and different CAM pools for different building areas.

CAM is typically paid in monthly estimates with annual reconciliation. The reconciliation produces the disputes. If estimates exceeded actual, the tenant gets a refund or credit. If actuals exceeded estimates, the tenant owes the difference. The reconciliation is where audit firms get involved and where most of the litigation starts.

Common CAM disputes

• Disputed expense categories. Tenant claims a particular category isn’t proper CAM (e.g., management company fees, capital expenses, marketing costs).
• Disputed amounts within categories. Tenant claims the category is proper but the amount charged isn’t reasonable.
• Capital vs. operating expenses. Tenant claims an expense is a capital improvement that should be excluded; landlord claims it’s a maintenance expense that’s includable.
• Allocation challenges. Tenant claims the pro-rata share calculation is wrong, or that specific costs should be allocated to specific tenants rather than spread.
• Late or missing reconciliations. Tenant claims the landlord didn’t provide the annual reconciliation in time, or didn’t provide adequate documentation.
• Audit dispute outcomes. After an audit, the parties dispute the audit findings.
• Cap challenges. The tenant claims the agreed cap on certain categories was exceeded.
• Gross-up disputes. Tenant claims the gross-up calculation is wrong or that gross-up was applied where it shouldn’t have been.

CAM audit rights

Most modern Texas commercial leases include CAM audit provisions allowing the tenant to audit the landlord’s CAM books. Typical provisions:

• Frequency. Annual or every two years.
• Notice. Tenant must give specific notice of intent to audit.
• Audit period. Tenant must complete audit within a specified time after CAM reconciliation.
• Cost. Generally tenant pays for the audit unless overcharges exceed a specified threshold (often 5%), in which case the landlord pays.
• Cap on years audited. Audit may cover only specified prior years (often the most recent year, sometimes 2-3 years back).
• Confidentiality. Audit findings must be confidential.

Audit rights are critical for tenants in long-term leases. Without audit rights, the tenant has no effective way to verify CAM accuracy.

Capital expense disputes

The most common CAM dispute category is whether specific expenses are capital or operating:

• Capital expenses (typically excluded from CAM). Major one-time costs that benefit the property’s value over many years, replacing the entire roof, replacing major HVAC systems, replacing parking lot.
• Operating expenses (included in CAM). Routine costs of operating the property, maintenance, utilities, cleaning, minor repairs.
• Mixed cases. Many expenses don’t fit cleanly into either category. A roof “repair” that effectively replaces 50% of the roof may be capital or operating depending on framing.

Lease provisions on capital expenses commonly include:

• Outright exclusion. Capital expenses excluded from CAM entirely.
• Amortization. Capital expenses included but amortized over their useful life.
• Cap. Capital expenses included up to a specified annual amount.
• Approval. Capital expenses included only with tenant approval (rare).

Common CAM mistakes

• Vague CAM definitions. Lease language that says “operating expenses” without further definition creates disputes. Specific definitions prevent ambiguity.
• No audit rights. Tenants without audit rights have no recourse for CAM disputes other than litigation. Always include audit rights.
• Inadequate reconciliation timing. Reconciliations more than 6 months after year-end create reasonableness issues. Specify reasonable timing.
• Capital expenses mishandled. Including major capital expenses in CAM without addressing them specifically creates disputes. Address capital expenses explicitly.
• Pro-rata share confusion. Anchor tenant exclusions, multi-building properties, and other complications can produce calculation disputes. Specify the calculation method.
• Late reconciliations. Some leases require reconciliation within 90 days of year-end; landlords who miss the deadline can face waiver arguments.