Usually, CAM charges and reconciliation are discussed from the tenant’s perspective. After all, the onus of pointing out any discrepancies in the CAM calculations lies with the tenant and not the landlord. However, the CAM reconciliation season can be quite a handful for landlords as well. When clients point out inaccuracies or inconsistencies in CAM computations, the Landlord has to cross-verify if the client’s claims are true, and if so, then make the necessary changes. Incorrect CAM computation is a major hassle for the Landlord as well. Our blog this week discusses some best practices that landlords can follow to ensure their CAM charges computation is accurate.
Check your invoices and general ledgers
Start by checking your books of accounts and invoices. CAM charges are basically common area maintenance expenses that are divided amongst the various tenants on the property. CAM expenses include various components such as common area utilities, elevator maintenance, parking lot maintenance, centralized HVAC charges, snow removal expenses, etc. The elements included in the CAM header may vary from lease to lease. But, the point is, no matter what is included in the CAM header it would have an invoice. For example, the utility company would’ve invoiced you on a monthly/annual basis for the common area utility consumption, you may have an invoice from the trash or snow removal company, etc. So, the first step in ensuring your CAM computations are accurate is to review your ledgers and compare the amount therein with the invoices you received from the vendor who provided those services to you and make sure that you have not missed out or overcharged your tenants for any of them.
Occupancy throughout the financial year
Occupancy is a key factor affecting the pro-rata share of tenants when it comes to CAM charges. Depending on the gross-up terms and conditions agreed upon between the landlord and the tenants, the tenant’s pro-rata share of CAM expenses will vary if the occupancy rate of the premises fluctuates. In order to ensure your CAM computations are accurate, ensure that you have taken into consideration any changes in occupancy rate including move-ins, move-outs, expansions, contractions, etc.,
Pro–rata share calculations
Pro-rata share calculations are, of course, the cornerstone of CAM charges computation. Ensure you have calculated the pro-rata share accurately for each tenant because that determines the final amount they owe you as CAM charges.
Exclusions and caps
In order to ensure the accuracy of your CAM calculations, make sure you pay attention to exclusions and caps. Exclusions in your leases will point out to expenses that are not a part of the CAM header. You won’t be able to pass on expenses that are excluded to tenants. Similarly, your leases will also specify caps, if any, on your CAM charges. Caps force you to limit CAM expenses to a certain pre-approved threshold, which is usually a percentage of the previous/base year’s expenses. Make sure your CAM computations are in line with the caps specified in your leases.
Irrespective of whether you are a landlord or a tenant, CAM computation and reconciliation can be complicated and time-consuming and can put a severe strain on your internal lease team during the audit season. In such a scenario it may be beneficial to outsource your CAM audit and reconciliation tasks to an expert lease administration company.
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