The preparation of CAM (common area maintenance) reconciliation statements is a tedious task, whether it is for a multi-family property or a commercial property. Such statements detail the charges that can be recovered for maintenance costs under a lease. CAM expenses usually include parking lot maintenance, landscaping, snow removal, janitorial costs and security. Often the task of preparing this statement falls to a property manager or a real estate company, and not an accountant. Needless to say, accounting may not be the forte of such professionals. Preparing CAM statements is a time-consuming chore but it must be done carefully, otherwise money that could be recovered will be lost.
Compounding the complexity is the fact that every lease is unique and the costs specific to that lease can be variable. Yearly amendments can change these costs during the course of the lease. Having an in-depth understanding of the terms of each lease is necessary to reap the maximum profit potential of a property.
Here are 3 top tips for a more profitable CAM reconciliation from leased properties.
- Optimize Management Fees
A management company is paid for running a property by the owner of that property. The owner might pay the management company less than the standard fee of 3%. It is common for management companies to accept such a fee rather than the higher fee allowed for in the lease. This is not done out of negligence, but to keep the tenant happy. In fact, some clauses state a minimum percentage to charge and that is what should be charged. Stipulating a minimum percentage in the lease allows for optimization of the management fees.
- Don’t Neglect the Interest
Often most leases allow the amortization of capital expenditures over a certain time frame, usually the life of the lease. Such expenditures also include an interest charge. Sometimes property managers or landlords forget to collect this interest charge. Neglecting this interest is money lost that could have been claimed. The wording of the lease will specify the rate of interest on the unamortized balance of the capital costs, or portion of those costs.
- Gross Up Calculations
Gross up calculations can be a confusing concept for those not accustomed to regularly dealing with leases. A gross up provision in the lease essentially states that if a building is not at least 95% occupied at any point during a calendar year, calculations may gross up expenses as if the building were at 100% occupancy. The costs of some CAM services such as landscaping are not related to occupancy. However, others such as electricity for certain areas and janitorial expenses are directly related to occupancy. Make note of the categories where expenses can be grossed up and charge tenants based on this calculation.