Whether you’re a seasoned commercial real estate owner or new to the game, you’ve likely heard the term “common area maintenance.” In fact, common area maintenance (CAM) reconciliation is what we help our owners with most often, out of all the complicated tasks in CRE.
Depending upon your region of the United States, and in some cases down to the state, your CAM charges will look different than others. For this reconciliation, you’re not able to take a one-size-fits-all approach. Today, we’re diving into common area maintenance reconciliation in Florida and some of the unique features of this region.
Start from the top
In short, CAM reconciliation is the process in which commercial real estate owners reconcile their estimated charges with their actuals, specifically for common areas/expenses shared by their tenants. These are things like:
- Janitorial services
- Sidewalk maintenance
- Parking lot upkeep and so on
At the beginning of each year, owners will project the cost of this upkeep and charge their tenants monthly, as part of the rent, according to their lease terms. The reconciliation process comes in when these projected expenses become either one, more than originally projected, or two, less than what was actually budgeted. Owners then will either owe their tenants money or seek payment for what is due. When you collect the rent and CAM charges from the tenant, you must separate the two amounts and report them separately when you file your sales tax returns. We suggest speaking with a CPA for that.
Common Concerns with CAM
CAM reconciliation can get complicated with multiple investments and tenants and gets even trickier with caps and percentages. What are some of the most common mistakes during the reconciliation process?
- Not truly conducting a conciliation. Work on your budget-versus-actual analysis and make your adjustments, versus simply rolling over funds from year to year.
- Messy records. The foundation for accurate CAM reconciliation is a clean chart of accounts categorizing recoverable versus overhead/operating expenses. Complete that before anything else.
- CAM delays/errors. CAM reconciliation should be your top priority at the beginning of every year. Don’t delay- it makes you look bad to customers and investors alike.
- Lease confusion. Each lease is different. Some have caps, some have percentages, some have included reimbursable expenses and some do not. Our advice? Know your leases.
Florida CAM reconciliation
Now that we understand how CAM reconciliation works, and how to avoid complications, let’s take a look at CAM reconciliation in Florida, specifically.
Section 212.031(2)(a), Florida Statutes, states: The tenant or person actually occupying, using, or entitled to the use of any property from which the rental or license fee is subject to taxation under this section shall pay the tax to his or her immediate landlord or other person granting the right to such tenant or person to occupy or use such real property.
What does this mean in layman’s terms? It means Florida law institutes a sales tax on rent, and CAM is part of the rent. The sales tax rate for CAM in Florida is currently 5.5%.
What happens if I don’t collect sales tax?
Failure to collect and remit sales tax on CAM charges can result in penalties and interest charges, which can add up quickly. Additionally, not properly calculating and reporting CAM charges can result in inaccuracies on your sales tax returns, which can also lead to penalties and interest charges. QuickBooks helps you with the sales tax, and STRATAFOLIO helps with the CAM.
How STRATAFOLIO helps with CAM:
STRATAFOLIO completes CAM reconciliation in one click. Commonly a manual and time-consuming task becomes automated and efficient with STRATAFOLIO. You can easily:
- Calculate tenant pro-rata share
- See your budgeted expenses compared to your actual expenses by expense category
- Access the lease for reference
- Create a CAM reconciliation report in just one click that can be shared with your tenant
- Prepare your CAM budget for the next year
STRATAFOLIO can answer your questions about CAM reconciliation, no matter the state you’re in. Contact us today and chat with our experts about your CAM concerns.