Get the most out of your 2019 CAM Reconciliation.
It’s the new year and if you are in the commercial property management business, you know what time it is! It’s CAM Reconciliation time! CAM stands for Common Area Maintenance.
If you own an office building, your leases most likely include a provision to recover CAM. If not calculated correctly, you may be leaving money on the table. With the help of a professional property manager, you will get as much income as possible from your CAM reconciliation.
CAM expenses typically include the following.
Typical CAM expenses include landscaping, janitorial, utilities, janitorial, repairs, and maintenance required for the common area of the property.
How do you calculate CAM?
Managers calculate CAM by taking all common area expenses for a property during a calendar year and billing each tenant for their share.
Per each lease, tenants are responsible for their pro-rata share of the CAM. This is usually based on the rentable square footage of the tenant’s occupied space divided by the total building square footage.
Commercial property managers reconcile CAM expenses each year and bill tenants by April 1st.
How do you recover CAM expenses?
Most tenants pay a monthly escrow for estimated CAM expenses based on an annual budget. This will alleviate a large expense at the end of the year. Tenants should be notified of their new proportionate share of CAM expenses in December of each year.
Are CAM expenses negotiable?
You negotiate CAM expenses in a lease. This usually occurs after an initial lease period where lease renewal is an option.
What happens with money recovered in CAM reconciliation?
Landlords use Money recovered in CAM reconciliation for operating the property.
Can a tenant dispute CAM expenses?
If a tenant has the right to audit CAM expenses in their lease, they may choose to dispute CAM expenses. The lease outlines the rules for this option and there is usually a set timeframe to do so. The property manager typically requires a tenant to come to their office to perform an audit.
Some leases cap CAM expenses to a certain percentage per year increase. In addition, these can be either cumulative or non-cumulative caps depending on the lease.
Additional tips for CAM reconciliation.
- When receiving all expenses, determine what costs you can allocate within your current lease provisions. Also, make sure and exclude all non-recoverable costs from your calculations. For example, capital costs generally are not recoverable CAM expenses. In certain leases though, you can recover capital costs as long as the costs lower operating expenses.
- Check leases for any base year provisions. If your tenant has a base year, the expenses from that base year will be subtracted from the total annual expenses and multiplied by the tenant’s allocable share of the square footage. Some leases do not have a base year but rather an expense stop. This is usually a set amount per square foot and will be subtracted from the total annual expenses.
- Check leases carefully for any capped expense provisions or gross-up potential. Certain expenses may need to be capped from year to year, this could be cumulative or non-cumulative. If you are able to gross up expenses based a certain occupancy, you should. Remember that only certain expenses can be grossed up. Examples of these expense items are utilities, janitorial costs, etc. Basically, any expense that changes along with occupancy.
- Most tenants pay a monthly escrow for estimated CAM expenses based on an annual budget. This will alleviate a large expense at the end of the year. Tenants should be notified of their new proportionate share of CAM expenses in December of each year.
- Bill tenants in a timely manner as many leases have a certain date to be billed by, usually around April 1st. In addition, certain leases may allow the tenant to audit the CAM expenses. Make sure your records are in good shape to make this process easy.
As you can see, dealing with CAM can be a detailed process. With the help of a professional property manager, CAM reconciliations can be a piece of cake! I love the cake. Clearly, the new year health kick is taking a toll on me.