CAM Reconciliation and CAM Charges: How to Manage Them
What is cam in real estate?
One of the most complicated sections in commercial real estate leases are common area maintenance (CAM) charges and CAM Reconciliation. In short, maintaining common areas of a property costs money to maintain. Their upkeep is essential to the tenants that occupy the space and their customers. At the end of each year, CAM charges are typically reconciled by landlord and passed on to the tenant.
Let’s take a closer look into what CAM charges are. We’ll explain how they are calculated and managed. And, who is responsible for the costs.
What Are Common Area Maintenance (CAM) Charges?
CAM charges are the costs of maintaining common areas of the property. They are paid by tenants to landlords to help cover costs associated with these operating expenses as well as any overhead.
Tenants and landlords have different viewpoints when it comes to what should be included in the CAM section of a lease. For landlords, CAM expenses mean any and all expenses incurred by the landlord in order to maintain, repair, operate and manage and insure the commercial property. But tenants see these common area maintenance charges in a broader sense as the upkeep of common spaces used by all tenants such as hallways, parking lots, public bathrooms, and building security.
What’s Included in CAM charges?
CAM charges depend on the property type (retail, commercial, office, industrial, etc.), tenant, type of lease (gross, modified, or net), and more. Here are some examples of typical operating expenses a landlord can incur and label as a common area maintenance charge and bill the tenant for:
- Repair and maintenance of parking lots
- Snow removal
- Trash removal
- Janitorial services
- Pest control services
- Real estate taxes
- Center signage
- Common area utilities
- HVAC maintenance
- Landlord’s administrative fees
- Management Fees, and
- Repair and maintenance of roof
The list covers a large variety of areas within the property, and depending on the space, it could have more CAM locations such as elevators, outdoor lighting, irrigation system, window washing, loading docks or delivery areas, sidewalks and driveway, renovations and other potential common area maintenance charges.
CAM charges can be hard to identify, so it’s important to ensure all records are documented and maintained properly and the exact expenses included in your lease.
How Do You Calculate CAM Charges?
At the start of the year, the landlord will budget the CAM expenses for the entire property and then divide the amount, based on the tenant’s pro-rata share, across the tenants in the building. Your percentage of CAM charges or pro-rata share, which is typically defined in the lease, will be calculated by dividing your square footage by the gross leasable area of the building. The total will be figured into your monthly operating expense so it can be paid throughout the year.
At the end of the year, the landlord will reconcile the actual CAM charges with the budgeted CAM cost and provide you with a CAM Reconciliation statement. The statement will let you know if you have underpaid or overpaid, and you will either receive a credit or you will owe the difference.
For a triple net lease property owner, which we will discuss later in this article, the tenant pays for 100 percent of those charges as stated in the lease. Most of the time, NNN tenants are national franchises such as Walmart, CVS, Walgreens, Starbucks, and Family Dollar.
Can CAM Charges Be Negotiated?
In short, yes. But there are a few things to consider. CAM charges are usually divided into two categories – controllable and uncontrollable.
- Uncontrollable expenses include things like utilities, taxes, and insurance.
- Controllable expenses are pretty much everything else listed in the previous section.
The good news is many controllable CAM expenses are negotiable depending on how efficiently the property is being managed. However, the property tax and insurance costs are not negotiable and fall under the uncontrollable category.
Types of Leases For CAM Charges
There are several lease types which can dictate how how CAM charges are written into the lease. Here are some of the common lease types and how operating and CAM costs are allocated:
Gross Lease: In a gross lease, the property owner is financially responsible for the building, and covers all the expenses associated with its operation (including taxes, insurance, and maintenance). To help recoup some of these costs, the property owner builds them into the monthly rent amount that a tenant pays for use of the building. The property owner pays all of the expenses associated with the building, in exchange for a monthly, all-inclusive rent sum.
Modified Gross Lease: In a modified gross lease, the tenant is responsible for some (but not all) of the operating expenses of the property but they still get to pay them as part of one monthly rent amount.
Net Lease or NNN lease: In a triple net lease, the tenant absorbs all of the operating expenses and property costs into their own business in addition to monthly rent payments, such as property taxes, insurance premium, maintenance, repairs and upkeep
Why It’s Important to Understand CAM Charges
Unfortunately, there’s no widespread agreement on what exactly CAM charges may include. And, the common area costs included in CAM charges section of a lease can vary from market to market and from one landlord to another.
If you would like to reduce operating costs of a property you currently own or manage, here are some strategies:
- Research other buildings in the area and see how comparable their CAM charges are to the market
- Ask the prior landlord for a CAM history
- Negotiate the terms of CAM clauses in your leases
Understanding CAM charges is one of the most difficult parts of negotiating a lease. CAM charges have a significant impact on the property’s NOI and the amount the tenant will pay to occupy the space.
What is CAM Reconciliation?
Cam Reconciliation is the process of reconciling the actual amount spent during the calendar year for CAM vs. the budgeted amount that was set at the beginning of the year. That is then reconciled against what the tenant contributed towards CAM throughout the year.
Why its important to use the right Property Management Software
As we discussed earlier in this article, proper record keeping and accounting is an important aspect of the CAM Reconciliation Process. The right Property Management Software, specifically designed for Commercial Real Estate will help you get your budget set up at the start of the year and reconcile CAM at the end of the year with your tenants. Tenants typically ask for backup or detailed reports prior to reimbursement of any CAM Reconciliation related fees. Property Management Software like UnitConnect, helps commercial property owners or managers get through the CAM Reconciliation with ease. UnitConnect provides all the tools for proper record keeping and reporting to get you through the CAM Reconciliation in minutes.