Understanding common area maintenance reconciliation, also known as CAM reconciliation, is essential to properly managing your commercial real estate NNN leases.
CAM Reconciliation can be Complicated!
It may seem like a straightforward process. You add up common area maintenance expenses and bill your tenants appropriately! But in reality, common area maintenance reconciliation can be complicated. And, as we all know, it takes time, but it doesn’t have to be that way.
Why CAM Feels Like Such a Chore
There’s plenty of room for error when it comes to common area maintenance charges. This can lead to frustration for management and tenants alike. No one wants to be overcharged each month, and no one wants to have to write you a check at the end of the year due to inaccurate billing. Making a mistake could cost you a good tenant relationship.
Despite these challenges, when you know the best practices for budgeting and calculating, you can build a CAM reconciliation process that benefits you and your tenants alike. Read on for tips to ensure accuracy in this important area of property management!
Budgeting for CAM
One of the most essential aspects of CAM reconciliation is budgeting. Whenever possible, use your previous year’s budget as a guide for estimating this year’s expenses. If you’ve recently purchased the property, get access to the previous expenses and CAM reports.
If your leases have other important information such as pro-rata shares, your CAM calculations should take those into account as well. Double-check all your pro-rata shares to see if any of them have changed during the year. Then, look for discrepancies between what’s in the leases and what you’ve calculated.
The different expenses that go under the common area maintenance umbrella will vary from one property to another (and from one lease to the next). Some of the expenses that will likely contribute to CAM include:
- Taxes
- Property insurance
- Pest control
- HVAC
- Utilities
- Security
- Management expenses
- And more
On a standard triple-net lease, you’ll bill your tenants each month for CAM expenses. Each tenant will pay their appropriate share of the total projected CAM expenses. All of this information should be clearly stated in each tenant’s lease. Clearly, laying out what’s included in CAM in your lease will reduce disputes in the future. It should also be easy to access these expenses in your records.
Calculating CAM
Typically, you’ll calculate the actual CAM expenses for the previous year shortly after the start of the year. If you want your CAM reconciliation process to go smoothly, here’s what to do before you get started.
- Review your general ledger line-by-line
- Adjust for tenant move-ins and move-outs
- Keep track of exclusions like management fees
- Contact third parties for bills, special reports, and other necessary information and potentially put out bids for work to ensure you get a competitive rate
- Familiarize yourself with any special requirements for specific tenants
Don’t make the mistake of rounding up to 100% occupancy while you are calculating CAM. While some leases may allow for this, CAM expenses like electricity or janitorial services are directly related to the number of occupants in your property. Make sure your calculations reflect this.
If tenants have a cap on their expenses, you’ll need to adjust their expense pool. Also, be sure to adjust for the actual number of days the tenant occupied their space so you do not overcharge them on CAM.
Now, you can reconcile billing against your tenants’ shares of the recoverable expenses and send each tenant an invoice showing how much is owed or due. Once the invoices have been sent, you’re done with CAM reconciliation… until next year!
Simplify CAM Reconciliation with STRATAFOLIO
CAM reconciliation can be complicated. If you’re looking for a way to make CAM reconciliation as effortless and accurate as possible, try STRATAFOLIO! We’ll give you the tools you need to manage your CAM expenses in a simple and stress-free manner.
