Category: CAM audits

Unveiling the Factors Influencing CAM Charges: Exploring Building Improvements, Landlord Changes, and Tenant Movements

 

Common Area Maintenance (CAM) charges are a vital aspect of commercial leases, contributing to the upkeep and maintenance of shared spaces within a building or complex. CAM charges often cover expenses related to building improvements, property management, utilities, repairs, and other shared amenities. This blog aims to shed light on how various elements, such as building improvements, new landlords, new tenant move-ins, and existing tenant move-outs, can affect CAM charges.

Building Improvements:

Building improvements play a significant role in determining CAM charges. When a landlord invests in upgrading shared areas, such as lobbies, elevators, parking lots, or landscaping, the associated costs are typically included in CAM charges. These expenses are divided among the tenants based on the lease terms, including square footage or pro-rata share. Extensive renovations or major overhauls may result in increased CAM charges, reflecting the enhanced value and functionality of the building’s common areas.

New Landlord or Landlord Change:

A change in ownership or the arrival of a new landlord can impact CAM charges. When a property undergoes a change in ownership, the new landlord may reassess the existing CAM structure. They might review service contracts, renegotiate pricing with vendors, or alter the distribution of costs among tenants. Consequently, tenants might experience adjustments in their CAM charges, either through an increase or a decrease, depending on the new landlord’s management strategy or investment plans for the property.

New Tenant Move-In:

The addition of a new tenant within a commercial building can influence CAM charges in several ways. The addition of a new tenant can potentially lead to a reduction in CAM charges for existing tenants. When a new tenant moves into a commercial building, it introduces the opportunity to redistribute the CAM charges among a larger tenant base. The new tenant’s presence can help alleviate the burden of CAM expenses for existing tenants. By spreading the costs across a greater number of tenants, the individual CAM shares for existing tenants can decrease. As more tenants share the common area expenses, the costs per tenant decrease, resulting in potential savings for the tenants. 

The addition of a new tenant to a commercial building has the potential to reduce CAM charges for existing tenants. By expanding the tenant base and spreading the common area expenses, economies of scale come into play, resulting in decreased individual CAM shares.

Existing Tenant Move-Out:

When an existing tenant moves out, it can impact CAM charges for the remaining occupants. With the departure of a tenant, the distribution of common area expenses among the remaining tenants might be adjusted. The departing tenant’s share of CAM charges could be re-apportioned among the remaining tenants, resulting in a potential increase in their individual CAM charges. The rationale behind this is to ensure that the costs of maintaining common areas are still adequately covered even with a reduced tenant base.

CAM charges are influenced by several factors, including building improvements, changes in landlords, new tenant move-ins, and existing tenant move-outs. Understanding these dynamics is crucial for tenants and landlords alike to anticipate and manage their CAM obligations effectively.

CAM Reconciliation and Audit:

CAM charges are typically estimated and billed to tenants on a regular basis. However, it is important to ensure the accuracy and fairness of these charges through CAM reconciliation and audit processes. CAM reconciliation involves comparing the estimated CAM charges with the actual expenses incurred over a specific period. Any discrepancies are then adjusted, and tenants are either refunded or billed for the difference. This process helps maintain transparency and ensures that tenants only pay for their fair share of CAM expenses.

CAM audits, on the other hand, involve a detailed examination of the CAM charges and expenses by an independent third party. Audits can help identify potential errors, overcharges, or inconsistencies in the CAM calculations. For tenants, CAM audits provide an opportunity to verify the accuracy of charges and ensure compliance with the lease agreement. Landlords also benefit from CAM audits as they can help uncover operational inefficiencies, identify cost-saving opportunities, and maintain positive relationships with tenants.

CAM reconciliation and audit processes play a crucial role in fostering trust and accountability between tenants and landlords. These processes help ensure that CAM charges are fair, accurate, and reflect the actual expenses incurred for the maintenance and upkeep of common areas. By promoting transparency and addressing any discrepancies, CAM reconciliation and audit processes contribute to a harmonious tenant-landlord relationship and a well-managed commercial property

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a trusted partner, for 17+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking a strategic advantage. All client projects are performed in-house.

Learn More about RE BackOffice’s CAM Audit Services: 

Lease Administration post: Budgeting for Common Area Maintenance (CAM) Expenses

Common area maintenance (CAM) charges are the tenant’s share of expenses that they owe the landlord. CAM charges are paid by tenants to reimburse the landlord for expenses incurred by them for 

  • Maintaining common spaces such as elevators, lobbies, stairwells, parking, etc.
  • Services that benefit all tenants such as snow removal, trash removal, security, etc. 

CAM charges are divided among all tenants based on their pro-rata share, which is calculated based on the area leased by the tenant. A tenant with a larger leased area will pay a greater percentage share of CAM expenses than one with a smaller area. 

Budgeting in CAM

In order to help tenants and landlords plan better and ensure no single party has to bear the load of  sudden, unforeseen large expense in the form of CAM charges, landlords resort to budgeting. Budgeting for CAM involves estimating the CAM expenses for the year for the entire property, computing each tenant’s share of expenses based on the estimate and sharing that with them so they can prepare for the expenses and also make payments to the landlord as stipulated in the lease. The CAM expense budget is usually prepared based on the previous year’s actual expenses incurred. At the end of the year, the estimates are verified against the actual expenses incurred by the Landlord and invoices are raised to the tenant for any additional charges that need to be paid. Similarly, in the event of any overpayment, the same is credited back to the tenant. 

This is where CAM reconciliation enters the picture. Tenants don’t have to simply take the landlord’s word for it. They have every right to verify if the landlord’s computation of CAM expenses is accurate. In fact, they should, because the onus of proving otherwise is on the tenant. Retail tenants with a significant number of leases can save a significant amount of money through CAM reconciliation alone. The challenge? CAM Reconciliation has to be done within the stipulated time frame in  the lease, which usually varies between a month to three months. However, this is not something tenants can let slide because it has far-reaching implications. For example, in the case of leases where CAM expense hikes or rent increases are calculated based on the previous year’s share, any error in CAM computation can embed itself in the lease affecting pushing the overall lease cost high, impacting the lease ROI negatively in the long run. 

CAM overpayments are not uncommon–especially in the case of retail tenants because their lease portfolio is usually quite large. Keeping track of their lease expenses across hundreds or even thousands of leases spanning across multiple locations is tricky. Even if you invest in a good lease portfolio management system or lease administration software, there’s a considerable amount of human effort involved, which makes it challenging to identify overcharges and bring them to the landlord’s notice for rectification. Because CAM reconciliation is an annual exercise, it makes sense to outsource it to a trusted lease administration service provider who can handle the entire process, right from scrutinizing the invoices raised by the landlord, recomputing the tenant’s pro-rata share of the expenses to co-ordinating with the landlord’s lease administration team in the event of any discrepancies or need for further clarification.

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a  trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking a strategic advantage. All client projects are performed in-house.

Whether it is one clause, one amendment or a whole lease agreement, we can do it for you.

Lease Administration post: Understanding different types of CAM Computations

CAM or Common Area Maintenance charges are a critical component of Triple Net leases. Our blog this week discusses the various types of CAM calculations that may find their way into your lease. But, before you proceed, if you’d like a quick refresher on what CAM constitutes, please check out our last blog post, CAM (Common Area Maintenance): An Overview. 

Fixed CAM

Fixed CAM refers to a fixed amount of CAM charges that would be levied on the tenant. When CAM is computed on a fixed basis, there are some advantages to both parties, i.e, the landlord and the tenant. For the tenant, there’s a sense of certainty and security because the tenant doesn’t have to pay more even if their pro-rata share becomes higher owing to a lower occupancy rate of the leased premises. Why? in the case of Fixed CAM, regardless of the occupancy rate and the tenant’s pro-rata share they will continue to pay the CAM amount agreed upon in the lease. Also, since the different expenses under the CAM header are not calculated and consolidated to arrive at the CAM share of the tenant, there’s no scope for CAM audits or year-end reconciliations and adjustments. From the landlord’s perspective, irrespective of the actual expense incurred, they will get the fixed CAM amount, which will work in their favor if the actual expense incurred is less than the fixed amount. This arrangement works best when the tenant and landlord have a long-standing, trusted relationship. The fixed CAM amount is generally what is considered fair and reasonable by both parties. Also, sometimes, the parties may agree to include a clause to safeguard themselves and include certain expenses under the CAM header in the Fixed CAM category and charge/pay some others on a pro-rata basis based on the actual expense incurred. 

Limiting CAM Charges when not opting for Fixed CAM

Fixed CAM is not very common and tenants usually opt to pay for CAM expenses as a percentage based on their pro-rata share. However, in such cases, there’s always an underlying fear of the lease ROI being affected negatively for the tenant due to unforeseen increases in CAM charges. This challenge is resolved by putting a cap on CAM charges. There are different ways in which CAM charges can be capped to safeguard tenants’ interests.  Any CAM charge hikes are limited to a pre-decided percentage of the base year’s CAM expenses or the previous year’s CAM expenses. The percentage rise may be calculated on a cumulative or compounded basis, depending on the lease agreement.

If, as a tenant, you are not opting for Fixed CAM, please be sure to conduct regular CAM audits and reconciliation to ensure you are not paying more than what you owe in terms of CAM chargers. You also need to understand the various clauses in the lease that will affect your share of CAM charges.  CAM audits and reconciliations by a reputed lease administration services provider can help you save a significant amount of money annually, especially if you are a tenant with leased premises across multiple locations.

 

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a  trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking a strategic advantage. All client projects are performed in-house.

Whether it is one clause, one amendment or a whole lease agreement, we can do it for you.

Lease Administration post: CAM (Common Area Maintenance) Overview

 

CAM or common area maintenance charges are an important element of the rent roll. As the name signifies, CAM charges refer to the expenses incurred by the Landlord on account of maintaining the common areas of the leased premises. Since these areas are common and shared by all tenants, landlords usually split the common area expenses amongst all the tenants. Sounds simple, doesn’t it? However, CAM is one of the most complex elements of the rent roll and it is extremely important from a tenant’s perspective to get it right. This is because there are various factors influencing the CAM charges right from how it is calculated to what elements are included therein. It is not uncommon for Landlords to overcharge their tenants when it comes to CAM expenses because of oversight or confusion regarding how the CAM expenses are to be calculated. 

How are CAM charges calculated?

CAM charges are usually calculated on a pro-rata basis, meaning, the total CAM expenditure is divided amongst the tenants in the building based on the ratio of their leased space. For example, a tenant who has leased 2000 square feet in a building will pay a higher CAM amount than one who has leased 1000 square feet of space in the same building. Another factor that can affect the CAM charges’ calculation is the occupancy rate. Since the entire CAM expense is shared on a pro-rata basis among tenants, a higher occupancy rate translates to lesser CAM charges per tenant, as there are more tenants sharing the load. 

What elements constitute CAM charges?

Usually, CAM charges include the costs associated with maintaining the common areas and facilities of the leased premises. This includes lobby areas, stairwells, elevators, parking lots (in some cases), etc., Generally, CAM charges don’t include any capital expenditure incurred with respect to the common areas, though they may be amortized by the landlord over a period of time.

Are CAM charges the same as operating expenses?

Though sometimes used interchangeably, CAM charges are not the same as operating expenses. The term, operating expense is much more vast and covers additional expense items apart from those included in under the CAM charges head. Examples include Taxes and insurance. 

Are you being overcharged? Your lease has all the answers!

At the end of the day, the answers to all the questions regarding CAM lies in your lease. Your lease specifies everything you need to know about your CAM expense calculations such as, 

  • What constitutes CAM in your case?
  • How are the CAM charges calculated?
  • Are there any specific exclusions to the CAM charges head?

To stay on top of your leases from the CAM charges perspective, you need to do two things. The first is obviously getting your leases abstracted. A lease abstract will provide you quick access to the CAM charges data that you need and, the second step is to get a CAM audit done annually.  CAM audits and reconciliations by a reputed lease administration services provider can help you save hundreds of thousands of dollars annually, especially if you are a tenant with leased premises across multiple locations. Plus, If there are any discrepancies in your CAM calculations, the lease administration company to which you have outsourced the CAM reconciliation work will be the one getting in touch with your landlord. In general, this scenario is better accepted by Landlords, as the lease administration company comes across as a more reliable, third-party than your own internal team when reaching out to your Landlord. Plus, lease administration companies specialize in this kind of communication and usually have a process or protocol which is generally well-received by the other party. 

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a  trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking a strategic advantage. All client projects are performed in-house.

Whether it is one clause, one amendment or a whole lease agreement, we can do it for you.

Lease Administration post: A Quick CAM Audit checklist for tenants

 

Common Area Maintenance (CAM) charges form a major chunk of your lease costs. It is not uncommon for tenants to find that they have been overcharged erroneously by the Landlord. In our blog this week, we provide a checklist that tenants can refer to when verifying their CAM charges. This checklist highlights the most common areas of error when it comes to CAM Charges. 

New tenants moving into the property mid-lease year or existing tenants expanding their area

Generally, CAM expenses are shared on a pro-rata basis among all the tenants in the premises. This means, if you move into an empty building or a building with fewer tenants, the CAM charges will be higher. At the same time, if new tenants move into the premises, the pro-rata share per tenant will decrease as the total CAM expenses will now be shared by all the tenants, including the new ones. So, one of the areas to consider when auditing your CAM expenses is, if there were any new tenant move-ins during the lease year. Along the same lines are expansions. Sometimes, an existing tenant may lease out more area in the premises which will again affect the CAM share of other tenants by lowering their CAM expense. 

Amortizations

Sometimes, leases allow landlords to charge tenants for certain capital expenditures that they incur. Usually, such expenses are a result of specific capital improvements undertaken by Landlord for the tenant(s). The Landlord may then amortize the amount over the entire lease year. As a tenant, you may want to confirm if the amortization calculations are accurate. Similarly, as in the case of CAM, if the capital improvements pertain to a common area or all leased locations within the premises, then the amortization amount may also differ once the occupancy in the leased premises increases. 

Expense caps

Another thing to consider is the limit on expenditures, commonly referred to as expense caps. Check your lease agreement to understand the kind of expense cap it enforces. When you have an expense cap clause, it specifies the percentage by which the Landlord can hike the CAM charges every year. Make sure the calculations presented by your landlord are in line with the expense caps your lease specifies.

Exclusions

Last, but not least, check for any exclusions that may have been wrongly charged to your account. Leases often explicitly state certain expenses that the landlord cannot charge the tenants for. Check every item in your CAM/Operating expense header to ensure that they are not a part of your exclusion clause. 

Though helpful, this checklist is just a starting point. A detailed CAM audit and reconciliation will identify any discrepancies that may exist across various areas and help you save significant amounts of money. 

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a  trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking a strategic advantage. All client projects are performed in-house.

Whether it is one clause, one amendment or a whole lease agreement, we can do it for you.

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Lease Administration post: Are you paying too much rent?

 

Rent is one of the key components of any lease. In fact, the rent roll is the core of any lease agreement. However, it can also be one of the most complicated elements. Sometimes, owing to its complexity, tenants may even end up paying more than what they owe. In this blog, we discuss what constitutes the key elements of the rent roll that tenants shouldn’t ignore. 

Rent per square feet

If your rent is calculated per square foot, you need to ensure that the base of this calculation is correct–which is the leased space or sometimes referred to as square footage. Sometimes, even a minute error in lease square footage calculation can make a vast difference in the final amount that is levied on the tenant. This is especially true when the base rent, CAM charges, and other operating expenses are calculated on a per-square-foot basis. Learn more in this blog post

Any rent-rise indicators 

If your rent hikes are pegged to any other economic indicators such as the Consumer Price Index (CPI), you need to ensure the data related to the indicator is accurate. Any changes resulting due to changes in the base price index need to be accounted for accurately and reflected in the rent roll. 

What about CAM?

In net leases, CAM charges constitute a considerable chunk of your rent roll. Verifying CAM charges and ensuring the amounts levied are accurate is complex due to the nature of CAM elements. CAM includes multiple headers and complicated computations that often leave room for interpretation and also increase the chances of miscalculations. You need to be aware of the various components of your CAM charges and how they are computed for you as per your lease. For example, 

  • What happens if you moved into a fairly empty building that’s only gradually filling up? 
  • How is the CAM divided among the existing tenants including you, until the time there’s 100% occupancy?
  • What will be the repercussions on your CAM charges as new tenants are signed up.

As a tenant, it is very important to ensure that you have a solid understanding of your rent structure and the various elements that constitute your rent roll. It is also essential that you track them, consistently to ensure there are no errors, as errors that are embedded in the lease, year, or year can cost you dearly even impacting your key real-estate-related business decisions.

Two things that can help you in this regard are

  1. Timely CAM audits by an experienced lease services provider who will scrutinize your invoices, CAM calculations, and other related charges levied by the landlord to identify any errors and have them rectified for you.
  2. Accurate lease abstracts that simplify complex lease terms for you without diluting their essence so you understand your rent roll and related components clearly. 

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit, and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking strategic advantage. All client projects are performed in-house

Whether it is one clause, one amendment, or a whole lease agreement, we can do it for you. Please contact us today to learn more.