The new year marks a new beginning in a number of ways. And for property managers, one of the most important ways is a concept generally known as CAM reconciliation. Before we discuss some important items for both the tenant and the landlord to consider, let’s first explain what exactly CAM reconciliation encompasses. Landlords generally pass common area maintenance expenses through to the tenant. This can be done in a variety of ways, with the lease between tenant and landlord being the governing document. And the most common way is for the tenant to pay an amount each month based on the estimated/ budgeted CAM charges for that year and then reconcile the next year, when the actual expenses are determined. Although the concept is straight forward, there are several things that are common tripping points.
One area that can be troublesome is the actual CAM calculation. The actual calculation will most likely be spelled out in the lease. but we all know that mistakes can happen, so it’s a good practice to detail the calculation in an easy-to-understand and purely transparent manner. Special care needs to be taken in the event there has been a change in square footage – either the tenant’s premises or the total premises. Property managers need to make sure that all of the costs have been captured, with no outstanding invoices or unpaid items remaining from the prior year.
Related to this is separation of capital improvements from CAM expenses. This can be an issue with even a very sound lease document, as there always seems to be gray areas concerning cost that are considered capital expenses (and thus not a part of CAM) versus costs that are considered operating expenses (and thus a part of CAM). Again, the best approach is transparency, with any costs clearly outlined with accompanying detail when necessary.
Another area that can create issues is timing. Dates and deadlines should be clearly defined and landlord and tenant should strictly adhere to these timeframes. From the landlord’s perspective, make sure that the CAM reconciliation is submitted on time and that any overpayment from tenant has been handled as stipulated by the lease within the proper timeframe. From the tenant’s perspective, make sure to submit any questions or objections within the necessary timeframe and make any necessary shortfall payment on time.
Even when landlord and tenant follow all of the necessary steps, there can still be a disagreement on the CAM reconciliation. Large or otherwise influential tenants will often have various levels of rights written into their lease. These can range from inspecting to reviewing to auditing the landlord’s records related to the CAM reconciliation. This can be highly disruptive, so landlords should have a strong and logical system in place as well as a plan to provide the tenant with the necessary information should a dispute occur. From the tenant’s perspective, be sure to understand who is responsible for the actual audit costs.
Finally, a new year not only marks a time to review, but also a time to look forward. With regards to CAM reconciliations, the beginning of the year is when the 2017 CAM estimates are provided. Although the CAM reconciliation associated with this estimate is over a year away, a little investment in time now can pay a big dividend later. Landlords should take the time to ensure a sound estimating/budgeting process for CAM charges, including capturing any necessary detail and documentation and should make sure that any time deadlines are strictly adhered. Tenants should take the time to review the estimates and raise any questions sooner rather than later, certainly within any prescribed time frame.
The CAM reconciliation process is there to provide fairness to both the landlord and the tenant and a solid lease document helps to ensure that this occurs. Problems can arise, but having an awareness of these and trying to resolve any issues sooner rather than later can go a long way to ensuring a good ongoing relationship between landlord and tenant. Ira Krumholz CPM