The US Law defines CAM charges as the expense that a tenant is expected to pay up on a pro-rata basis towards the annual maintenance, repair and operation of common utility areas, as incurred by the landlord / property owner. In the real scenario, CAM charges are basically whatever the landlord has mentioned in the agreement and the tenant has agreed to. The process involves projecting CAM costs at the beginning of the year and distributing them over the year on a prorata basis per month. Most landlords, though thorough with their mention of CAM charges in the agreement, expect some aspects of charges to be “obvious” and omit or forget about them; forming the basis for a major disagreement at the time of the annual CAM audit.
Also, many people in general feel CAM audits are the tenants’ prerogative considering that there could be errors in calculation of projections made by landlords. This could be partly true. However, there are several ways landlords can benefit from a proper lease audit and a CAM Reconciliation Service.
1. Landlords can ensure that their properties are correctly valued by getting property management consultants to give them lease administration services; and include CAM projections in the service list. If CAM charges are not passed on to the tenants correctly, there is a possibility that the actual property value might get affected adversely.
2. By engaging a good lease administration company, landlords can say goodbye to extremely confusing recovery audits, painful recovery process and arguments / legal battles around gray areas such as capital improvements that lead to reduction in tenant’s CAM charges and unexpected charges that turn up because of a change in legislation or uncontrollable reasons.
3. CAM structures are varied across different landlords. Some tend to be fixed monthly costs while some, capped cumulative or compounding. The former is preferred when buildings have been operational for some years and landlords are aware of the tentative annual charges that they incur year on year. This makes projections easier and annual reconciliation is a pretty simple process. In cases where the tenants prefer a cap over the percentage of CAM increment that landlords can make, landlords will benefit by getting an expert company like Springbord involved in the process; both during CAM agreement as well as during year-end reconciliation.
In our experience, we have noticed that many landlords forget to include interest incurred on capital expenses while calculating their CAM projections. Sometimes, certain categories of expenses can be grossed up – again another aspect that is missed altogether / miscalculated by many landlords. We have handled many cases where in, landlords have come to us at the nth hour, after an audit notice, only to discover that they haven’t maintained relevant documentation in as much detail as needed.
Situations like these lead to an unpleasant situation where landlords end up losing a big chunk of savings just because they ignored the meticulousness demanded by activities that make up the CAM reconciliation process.
All in all, by handing over the entire CAM reconciliation process to experts, landlords have benefitted not only in terms of cost savings, but also from getting hit by tenant sponsored CAM audits.
To know more about our bouquet of services in lease administration, please visit at our Lease Administration Services