Controllable Expense Definition
The lease definition of which operating expenses are subject to annual caps ('controllable') versus which pass through at actual cost ('uncontrollable'), directly determining the effectiveness of CAM caps.
Model Lease Language Variations
“Controllable Operating Expenses means all Operating Expenses other than (i) real estate taxes and special assessments, (ii) insurance premiums, and (iii) utility costs. All other Operating Expenses shall be deemed controllable and subject to the Cap.”
Narrow exclusion — only taxes, insurance, and utilities are uncontrollable. Management fees, repairs, and all other costs are capped. Landlord accepted the risk that these costs will rise faster than the cap.
“Controllable Expenses means Operating Expenses excluding: (i) real estate taxes and assessments, (ii) property and liability insurance premiums, (iii) utility costs, (iv) snow and ice removal, and (v) costs imposed by governmental regulation enacted after the date hereof. All Controllable Expenses shall be subject to the Annual Cap.”
Broader exclusion list includes weather-related and regulatory costs. Standard market approach — landlord retains uncapped pass-through for truly uncontrollable items.
“All Operating Expenses are deemed Controllable and subject to the Annual Cap, including without limitation real estate taxes, insurance, utilities, and management fees. Only costs imposed by governmental regulation enacted after the Commencement Date and not reasonably foreseeable as of the date hereof shall be excluded from the Cap.”
Nearly all expenses capped. Only genuinely unforeseeable regulatory costs excluded. Maximum tenant protection — landlord bears risk of tax and insurance increases.
Calculation Methodology
1. Review the lease's controllable expense definition. 2. Classify each operating expense line item as controllable or uncontrollable. 3. Sum all controllable expenses and apply the CAM cap calculation. 4. Sum all uncontrollable expenses and pass through at actual (no cap). 5. Tenant's total CAM charge = capped controllable share + actual uncontrollable share.
Common Drafting Errors
Using a non-exhaustive exclusion list ('including but not limited to') — landlord can argue additional items are uncontrollable
Not addressing utility costs — a major and volatile expense category that should be explicitly classified
Failing to specify whether management fees are controllable — they are a percentage of expenses, so they arguably increase with uncontrollable cost increases
Not addressing newly created expense categories (e.g., sustainability compliance costs) — ambiguity over whether they are controllable
Relevant Case Law
Dispute over whether property insurance premium increases (35% YOY after major storm season) were 'controllable.' Court held insurance was explicitly excluded from the controllable definition, so the full increase passed through uncapped.
Billing System Implications (Yardi / MRI)
In Yardi, controllable vs. uncontrollable expenses must be mapped to separate recovery pools or expense categories within a single pool with different cap settings. Common error: applying the cap to the entire recovery pool total, which effectively caps uncontrollable expenses. In MRI, use separate allocation codes for controllable and uncontrollable line items — verify that the cap only applies to the controllable subtotal.
CapVeri Analysis
The controllable expense definition is what makes a CAM cap meaningful or hollow. A cap that excludes taxes, insurance, and utilities may only cover 40-50% of total operating expenses, leaving the majority uncapped. CapVeri analyzes controllable vs. uncontrollable splits to identify when caps are being applied to the wrong expense categories.
Related Resources
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