Category: Lease abstraction

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.

The four-pronged approach to lease abstraction: A must for lease abstraction project success

 

A lease abstraction project is complex by nature. There are usually hundreds of leases to be abstracted, multiple documents to be referred to and a lot of key data to be captured. It involves investing considerable time, money and human resources. So, it makes sense to ensure that every lease abstract you generate serves its intended purpose, providing critical information as required by all stakeholders across the organization. Sometimes organizations lack foresight or fail to put in enough thought into their lease abstracts or lease abstract templates and as a result they end up not leveraging the resources deployed for the lease abstraction project fully in the first go. After sometime, as the abstracts start being used across the organization or when a certain set of stakeholders need quick access to specific data sets present in the lease, they realize that they have missed capturing certain data points. This entails having the leases or specific data points from the leases abstracted again, which is naturally expensive. Having a four-pronged approach to lease abstraction can help organizations avoid this pitfall. This approach covers 4 key data types namely, 

Financial

This involves tracking and optimizing every aspect of the company’s portfolio of leased assets that will add value to the entire leased portfolio and can also make a huge impact on the outcome of the financial report. Examples include rent and other payment obligations, Security Deposit, Tenant Improvement allowance, etc,.

Operational

This involves tracking critical lease dates and highlighting potential liabilities, which, if missed could result in serious financial implications to a company’s bottom line. For example, missing notice period, renewal options, last date of rent payment, etc., or, not understanding or accruing a potential lease liability and its obligations such as using the premises for sale of goods or services not permitted in the lease. 

Compliance 

Whenever there’s change in regulatory requirements that impacts how your leases and the components therein are shown in the books of accounts, it will result in some changes in your lease abstracts. The most recent example is the FASB/IASB regulations that categorized the leases as operating leases, capital leases, leases with right to purchase, etc., thus bringing about changes in the way they are accounted for, in effect, requiring the lease abstracts to be restructured to comply with them. 

Emergencies

The COVID-19 pandemic brought to light the need to explore various clauses, which were otherwise, probably not considered important to be included in lease abstracts. An example is when, during the peak of the pandemic a lot of tenants, especially in the retail industry, had to act swiftly to exercise the options in their leases that offered them some respite as their finances hit rock-bottom due to lockdowns and shelter-in-place restrictions brought on by the pandemic. Examples include exercising the Force Majeure clause that may allow the tenant to terminate the lease before the end of the term or allow for rent abatements or suspension in exigencies such as the pandemic.  

If you are not sure of what data points to include, consult an experienced lease abstraction vendor. They will be able to identify them for you and help you build a lease abstract template that caters to the needs of all the stakeholders in your organization.

 

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.

ICSC, ICSC 2021, REBACKOFFICE

The Lease Abstraction Process & its Stakeholders

 

When getting your leases abstracted, you should consider the stakeholders who will be using the lease abstract information. This is important because only when you identify the stakeholders and each of their requirements, will you be able to create lease abstracts that capture all the data they need. 

When it comes to identifying the stakeholders and their requirements in terms of the lease data being abstracted, communication is the key. You need to find out who will be relying on the lease abstracts and for what purposes. Stakeholders can be found across your organization, in different teams including-

  • Operations
  • Accounting
  • Finance
  • IT
  • Legal

All of these teams will have an interest in the various different aspects of leases and you need to find out what they are and ensure that your lease abstracts cover those elements. Once you clearly identify all the stakeholders, the next step is to understand their requirements. What information will they need from the lease abstracts? The answer to this question will help you arrive at the key data points that are to be abstracted. 

At the time of finalizing the data points based on the various stakeholder’s requirements, you may come across various data capture requests. As a best practice, you can divide them into two different categories–one that lists the must-have data fields and another that lists those data fields which are good to have, along with reasons why. You can use this list to later finalize your lease abstract data elements. 

Bringing all the stakeholders onboard and understanding their needs before you start your lease abstraction project will ensure that your abstracts are comprehensive and don’t miss out any key information. Otherwise, you may miss out on critical data elements, requiring you to go back and get your lease abstracts updated by adding abstracts of those clauses later on.

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.

ICSC, ICSC 2021, REBACKOFFICE

Questions to ask in the pre-lease abstraction phase

 

Lease abstraction projects can be divided into 2 phases, namely, the pre-abstraction phase and the post-abstraction phase. The pre-abstraction phase is extremely important as it sets the tone for the rest of the project. The success of a lease abstraction project largely depends on the actions taken during the pre-abstraction phase. Our blog this week discusses a few questions that must be answered during the pre-abstraction phase in order to ensure the lease abstraction project is fruitful. 

Question #1: What are the different lease types?

Before starting your lease abstraction project, you need to consider the different lease types that you have. These include equipment leases, real estate leases including property and ground leases.  This is an important factor, because the information you capture and the lease abstract format will vary depending on the type of lease. 

Question #2: Where are the leases located?

Another factor to consider is the lease location. This question has two parts to it. First is in terms of lease documents storage and location. Questions to answer from this perspective are 

  • Do you have digital copies of the lease documents? 
  • Where are they stored and are they easily accessible? 
  • What is the quality of the documents in terms of readability?. 

The second part related to the location of the leased premises which may affect the actual language in which the leases are drafted and also the interpretation of clauses due to differences in lease/legal language from region to region. This is important because it impacts how you approach your lease abstraction process. As a best practice, when dealing with multilingual leases, it is generally more economical, efficient and even accurate when the lease abstract is created in English directly rather than abstracting in the local language and then translating the abstract to English. 

Question #3: How is the lease portfolio currently managed?

The next item to consider is the current situation of the lease portfolio. How is the lease portfolio currently managed and by whom? Do you have enough resources to stay on top of your lease portfolio and keep it updated, always? Do you have a well-staffed lease administration team or do you rely on a few lease administrators for management of your lease portfolio? In that case do you have a back-up if your lease administrator quit? These are some of the questions to be answered at this stage. Another factor to think about is whether you have a lease management system in place or are you relying on spreadsheets? While spreadsheets have their benefits, a dedicated lease platform can be a more effective tool for lease portfolio management. So, if you are having your leases abstracted, and are using spreadsheets, it might also be a good time to consider migrating to a lease administration platform that can help in lease management throughout the lease lifecycle.

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. 

ICSC, ICSC 2021, REBACKOFFICE