Although common area maintenance (CAM) charges are a routine element in most commercial leases, their terms can vary significantly. To execute an accurate annual reconciliation of these expenses, there must be a comprehensive understanding of this process and its components. This may seem like common knowledge, but there are crucial practices that can be overlooked while completing CAM reconciliations that can create miscalculations or inaccurate chargebacks.
We want to share a few tips that will minimize any unpleasant financial surprises and allow for efficient processing.
Check out this short video if you’re unsure of what a CAM charges or CAM reconciliations mean in a commercial real estate lease.
Tip 1- Precise Calculations:
While common area maintenance costs allocate a portion of certain property expenses to each tenant, remember that the terms of each lease vary. The lease variations directly affect the obligation in which each tenant must cure such expenses. An example of this would be variable CAM fees vs. flat or fixed CAM fees. It is also important to carefully extract costs that should not be included in these charges, routine vs. capital expenditures or any expenses that do not benefit all tenants of a commercial property.
Understanding the difference between lease terms and expense items is crucial for accurate calculations and allocations.
Tip 2- Clear Communication Channels:
Sending out clear and timely notices to tenants will significantly benefit all parties. By doing this, the property manager will maintain effective communication by keeping the tenants informed, allowing sufficient time for any questions to be addressed prior to the payment deadline and eliminate delay in processing (win-win).
Full disclosure: an open line of communication is vital. This will build trust between you and your tenants and show appreciation of their occupancy.
Tip 3- Meeting Deadlines:
Be attentive and think ahead. What invoices, if any, have yet to be received to finalize the reconciliation? It is important to make sure that all charges that are or may be considered common area expenses are presented so that end of year calculations are assessed on time. This includes all relevant records that reflect the costs incurred by the owner throughout the year.
These supporting documents should be on file in the event that a tenant exercises their right to conduct an audit of these calculations. It’s very important that the property manager has them readily available for reference. It is also common for commercial leases to have a submission deadline for CAM reconciliations. If stated in the lease, the date for submission should be clearly defined and complied with.
Acquiring a structured practice for monitoring and managing action items will always be the best tool for establishing and prioritizing tasks, verifying measures to be taken to complete such tasks and determining intended results.
Conclusion
Using the tips we provided above will allow for a smooth transaction and proper execution of this accounting process. You will ensure that all tenants have a clear understanding of their financial obligations and that all recoverable expenses entitled to the owner are accounted for and remitted/refunded on time.
Do you need help with CAM charges or CAM reconciliations? Get in touch with us today! We’d love to speak with you and answer any questions you may have.
