Read time 2 minAnnual common area maintenance (CAM) reconciliation is one of the most tedious processes that is notoriously error prone. Despite the fact it is also one of the processes that is often overlooked by commercial property owners, resulting in errors in reconciliation that over time results in thousands of dollars in losses.
Reconciling CAM expenses against actuals is a complex, confusing, and time-consuming task. The challenge is further exacerbated due to missed information, wrong interpretation, or inaccurate/incomplete lease data that not only cost landlord money but also result in non-compliance in some cases where landlords violate tenants’ rights as per the lease agreement.
How to kick start the process of reconciliation?
It all starts with budgeting that entails estimated cost that needs to be recovered. This is what forms the base for monthly CAM billings that lists tenant’s share of estimated expenses. What is critical in this step is to be aware of the fact that ever lease is different and vary in the way operating expenses are billed and recovered. There is no one-size-fits-all solution, understanding your lease portfolio, its variations, and provisions are extremely important. From amortization of capital expenditures, to accounting for interest charge, you need to be aware of the lease terms in order to reconcile the expenses and recover the amount correctly.
Second you need to be able to comprehend and interpret every detail and clause of a lease contracts related to recoverable operating expenses. These could include parking, landscape management, plumbing and janitorial services, housekeeping, HVAC, elevators, pest control, repairs, property taxes and insurance, and other associated fees/security/utilities and so on. Maintaining data related to these expenses, distribution ratios, and others is key to simplifying the year end task of reconciliation.
Whose responsibility it is?
It is the triple net (NNN) leases that require CAM reconciliation be done within a stipulated timeframe. Usually, it is the property managers who need to prepare these to ensure they meet the deadline and complete the reconciliation for timely and accurate accounting. However, given the volume and challenges involved, doing reconciliation in-house is becoming increasingly difficult and error prone. Also, landlords need to keep in mind that inaccurate reconciliation can result in tenant’s demanding for a CAM and if you fail to provide correct documentation it can result in litigations or legal issues.
It is therefore best to outsource CAM reconciliation to professional service providers. They bring skilled resources and follow industry best practices, helping you seamlessly take care of the year end reconciliation which is done on time and accurately. Outsourcing has always delivered major cost savings. By partnering with an offshore service provider, you would not only streamline the process but also save a substantial amount of money. CAM recon done correctly can maximize recovery, ensure compliance, and boost bottom line.
