CAM tends to be a headache for anyone involved in the process or the payment settlements. The structures associated with it are knotty, and leave landlords, tenants and accountants quite encumbered in their devious wake.
To extricate yourself from such tangles (or anticipated ones), and to prevent under/over recovery, there are a few things you can watch out for.
- Lease Abstraction, CAM Set-up, and Expenses Inclusion/Exclusion:
When the lease abstraction is incorrect, there naturally tend to be discrepancies in billing amounts, which result in bad owner-tenant relationships. Likewise, the CAM set-up needs to be done properly. With a proper analysis the lease abstraction can be culled out correctly. The process entailed should be sturdy and dynamic. Review the clauses for controllable and non-controllable expenses. Once this set-up is checked, the details are lucid and straightforward; thereafter everything else will fall into place. You can send timely notices and avoid missing out on expenses, billbacks, over billing or under billing.
- Getting the Right Estimates:
Landlords may draw up the estimates, but tenants, too, have the right to procure the basic information to have their own accountants verify. CAM is charged based on the estimated amount expected at the end of the year. Since this isn’t definite and is finalised only at the end of the year, it is based on the history of the building’s previous CAM charges, operating expenses, and annual increases. Tenants can audit the details before committing to the amount. It is important to get a fairly accurate estimate that tenants find reasonable, and avoid gross differences, forcing tenants to pay lump sum amounts at the end of the year. In the instance that this does happen, ensure that the under-billed amount can be regained in the rent structure of the following year, or the overbilled amount has been acknowledged and compensated.
- CAM Cap / Floor / Base Stop:
A cap is a control calculation that protects tenants from being charged more than a reasonably expected increase owing to escalation bases (base stop), and protects landlords when prices drop (floor). While CAM is, in itself, slightly capricious in that there is no definite amount fixed at the beginning but only variables and percentages for variations, to avoid any kind of unpleasantness at a future date, these arrangements must be made and accorded with at the time of the lease agreement.
- Types of Leases:
There are different types of leases – single net (N lease), double net (NN lease), triple net (NNN), gross and modified. While it’s all a negotiation on how the landlord and tenant agree to the type of lease they are entering into, it is something that must be very clearly defined. The agreements and CAM reconciliation basis will be defined based on the definition of the lease. It defines the base stop limit and other CAM expenses that the tenant will incur. The lease must be revisited at regular time frames as the CAM calculations must be based on the lease and not the system. For instance, one commercial enterprise in the building may be on a gross lease and gets charged for CAM when they shouldn’t. They then spend time and unpleasantness going back and forth clarifying the lease and its details. To avoid such unhealthy relationships between both parties, ensure the lease is defined, expounded and set up distinctly.
- Admin Fee:
This must specifically be mentioned in the agreement, not sprung on tenants at the last minute, as they can contest it in court. Pertaining especially to commercial property, the tenant is obligated to pay a fee for third party property management services and operating costs for the execution of CAM calculations. These can include activities undertaken either by the landlord or a manager, like organizing property insurance, negotiating service and maintenance contracts, attending to building security, and so forth.