Friday, February 2, 2018

CAM Reconciliation Time!

Now that all budgets have been finalized and prior year financials are complete, it's time to work on Common Area Maintenance reconciliation. Most commercial lease agreements allow for a yearly reconciliation of all common area maintenance costs. Without a knowledgeable property manager skilled in this particular task, it can surely be daunting to take on as a property owner. 

Here are 6 tips from the Real Estate Drill Down


1. Have all the CAM Costs been captured or received?

Be sure to verify all payments have been made and invoices have been received for all expenses related to CAM costs. Sometimes we cannot avoid the one or two invoices that slip through the cracks within the year. Follow up with the vendors to ensure the payment was accounted for and make sure your financial reporting reflects.

2.  Have the non-recoverable expenses been separated from CAM?

Once your financials are complete and accurate, you must be for sure all expenses are true CAM cost and not landlord expenses. In most cases, the leasing agreement will specifically define what is included in CAM for each tenant. The best situation is where the form lease used by the landlord clearly defines CAM and other costs to be included in the formula. If not otherwise directed by the lease provisions, did the repair/activity benefit all the tenants as part of maintenance OR is it a situation where the landlord unilaterally decided to make changes to the property that benefit a particular tenant or constitute deferred maintenance (i.e. replacement of 20-year old common roof or additional amenities requested by one tenant).

3. Have you made the proper calculations?

The next big task is to correctly determine the amount of costs and the percentage allocation to each tenant based on their rented % of Gross Leasable Area (GLA) – or other formula if the lease requires a different approach.  Beyond checking and re-checking the pure math, a quick review of the proper percentages owed by all tenants is critical to this process.  An hour reviewing and confirming these figures can pay off in time spent and $$ disputes at a future time. Also, use this time to complete your estimated CAM for the current year. 

Helpful tip: make sure the proper GLA is calculated – especially if there has been a change in the center, park or building during the past year. 

4. Have payments been made or credits noted?

Did the tenant pay too little based on the past year’s monthly CAM estimates?  If so, notice and request for payment of the deficiency should be sent out sooner rather than later.  Did the tenant overpay the estimated CAM charges?  If so, properly credit tenants with the overage or refund the amount to the tenants. If done in the right amount of time, the notices can be sent with the monthly rent statement.

5. Have all the deadlines been met?

Experience shows that often dates are overlooked. The date for submission of CAM reconciliations should be clearly defined and complied with according to the lease agreement. The results for missing the deadline can be costly. Make sure your CAM reconciliation notices are in the mail in a sufficient amount of time for the tenant to receive them prior to any deadlines.

6. Audit Rights invoked?

Most large retail, industrial and office tenants will reserve the right to inspect, review or even require an audit of landlord’s CAM reconciliation reports in their leases.  If invoked, this will require owners  to maintain sufficient records of costs, calculations and allocations, as well as allow tenants to view overall operations related to the property. A solid plan of record keeping is the best protection against any extended disputes between the parties here.

Tip: Beat tenants to the punch by providing this information in a document included with their CAM reconciliation notices as backup to prevent any potential disputes.

Let Benchmark complete your cam reconciliations for you. We complete all of the accounting, notices, and even provide the estimated cost for the current year expected expenses for all of our clients. BAS can do the same for you!

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