Are Management Fees Included in CAM Calculations? Yes — and the Administrative Fee Is Something Else

Yes, management fees are included in CAM calculations on most commercial leases — the property management fee is the cost of the person or firm that runs the building, and it sits in the operating-expense pool with the landscaping and the snow removal. The administrative fee is a different thing: a percentage the landlord adds on top of the tenant's share, as revenue, not as a cost. The two are routinely confused, on statements and in disputes, and the confusion costs money in both directions. This piece takes them apart.

The full sequence the fees sit in is in the complete guide to CAM reconciliation; the worked figures are in how to calculate CAM charges.

The management fee: an expense in the pool

A managed building pays somebody to manage it — a property management company, or the landlord's own staff. That fee is a real cost of operating the common areas, and most leases allow it to be passed through as part of CAM, usually with one of two limits written in:

• A cap on the rate — a management fee not to exceed X% of gross receipts or of operating expenses, typically 3% to 5%. A landlord who pays a manager 6% recovers 4% and absorbs the rest.
• A definition of what it may not include — the manager's leasing commissions, the cost of the manager's own corporate office, salaries above the on-site level.

In the reconciliation it behaves like any other line of the ledger: classified to a category, judged recoverable or not, assigned to the CAM pool, shared pro rata. One thing about it surprises people, and IREM's reconciliation course is explicit on it: the management fee is a variable expense. It is usually a percentage of the costs it manages, so it moves with occupancy, and when the variable pool is grossed up to the standard occupancy the management fee is grossed up with it. Taxes and insurance are not; the management fee is. Gross-up, explained.

The administrative fee: revenue on top

The administrative fee is not paid to anyone. It is a percentage — 10% to 15% is common — that the landlord adds to the tenant's share of the pool, to compensate for the overhead of administering the pass-through itself. It is landlord revenue, and the single most important thing to know about it is that it is outside the pool.

Put it inside — treat it as a cost and share it — and the reconciliation's check still balances, on a total nobody spent, and every tenant is overcharged. That is the classic silent error of the trade, and the guide's section on the check explains why it stays silent.

Two terms of the lease decide its size:

• The rate, and the base — most leases exclude real estate taxes and insurance from the base, so a 15% fee on a $120,000 pool of which $33,000 is taxes and insurance is 15% of $87,000, not of $120,000.
• Whether the base is the grossed-up figure or the costs as incurred. A 4% fee on $1.0 million as incurred is $40,000; on a grossed-up $1.1 million it is $44,000 — a fee on $100,000 that was never spent. Both practices exist; the lease has to say which.

The double charge the lease is written to prevent

Because the two fees compensate overlapping things — running the building, and administering the charges for running the building — a tenant's lawyer will usually try to allow only one of them, or to cap their sum. The common forms:

• A management fee not to exceed 4%, and no administrative fee.
• An administrative fee of 15% of CAM, excluding from CAM any management fee.
• A management fee and an administrative fee not to exceed, together, 5% of operating expenses.

A landlord who charges a 5% management fee in the pool and a 15% administrative fee on top of a pool that contains that management fee is charging a fee on a fee, and on a lease with either of the first two clauses is overbilling. The reconciliation has to apply the lease's own words, tenant by tenant — one tenant's lease may allow both and the next tenant's only one.

How each reads on the statement

The tenant's lease administrator looks for two lines, in two places:

	Where it appears	What it should show
Management fee	Inside the pool, as a category — Property management, $24,000	The rate, the base it was calculated on, and that it is within the lease's cap
Administrative fee	Below the tenant's share, as its own line — Administrative fee, 15% of $34,800	The rate, the base, and what the base excludes

A statement that shows management and administrative fees, $8,400 as one line has combined two things with two rules, and it is the line the audit will open with.

In short

The management fee is a cost of running the building: in the pool, variable, grossed up with the rest, usually capped by the lease. The administrative fee is the landlord's margin on administering the pass-through: outside the pool, on top of the tenant's share, on a base the lease defines. Show each where it belongs, apply each lease's own limit, and never let the second one be a percentage of the first.

ChargeRecoveries keeps the two apart by construction: the administrative fee is a lease parameter with its own rate and base, applied after the share and never inside the pool — which is why the check balances on the pool that was actually spent.

Frequently asked questions

Is the management fee the same as the administrative fee? No. The management fee is paid to whoever manages the building and is an operating expense in the pool. The administrative fee is a landlord markup added on top of the tenant's share.

Can a landlord charge both? Only if the lease allows it. Many leases permit one or the other, or cap the two together; a fee on a pool that already contains the other fee is a fee on a fee.

Is the management fee grossed up? Usually yes — it is a percentage of the costs it manages and moves with occupancy, so IREM classifies it as variable. The lease is the authority.

What is a typical management fee cap? Commonly 3% to 5% of gross receipts or of operating expenses, written into the lease. Above the cap, the landlord absorbs the difference.