Whether you’re a real estate property manager or a landlord, the maintenance of the property, managing the lease agreement, and optimizing the property expenses are always both a boon and a burden. When it comes to commercial leasing, the tenant has to bear certain common area expenses of the property along with the proprietor.
Commercial property owners are often entangled with other managing activities, and no wonder certain priorities are overlooked. One of them is drafting Common Area Maintenance (CAM) expenditure.
Tenants depend on their landlords regarding the CAM charges and cost estimation. Common Area Maintenance is an essential aspect of commercial lease calculation, and any increase or decrease in the cost value equally affects both parties.
Therefore, an appropriate real estate CAM auditing is required to ensure the right CAM charges are estimated and prevent any contention between landlords and tenants.
What is CAM?
CAM in lease administration is the process of calculating commercial leasing expenses. A specific portion of the business space is common to all the tenants in a commercial business space and needs to be shared.
Each tenant’s participation is required to maintain the shared space area, and they need to pay their share percentage as monthly common area maintenance charges.
Landlords or business owners list the commercial property’s common area expenses in the lease agreement. But CAM cost calculation does not follow any structure. The CAM expenses mentioned in the document are often not transparent for the tenants to understand, along with the cost estimation. Hence, proper real estate CAM auditing becomes mandatory to avoid extra charges incurred on tenants.
Need for CAM Audit
There are certain incidents where proprietors erroneously overcharge tenants. These overcharges may lead to severe conflicts, contention between tenants and property owners, and costly litigations.
Given the complexities in drafting commercial leases and CAM accounting, it becomes formidable for tenants to recollect their overpaid rents. Commercial tenants seek real estate CAM audits to assess the CAM invoices and pay rents according to lease terms and obligations to avoid such situations.
A year-on-year CAM audit can help tenants keep themselves updated on pro-rata shares, capital costs, exclusions, and caps value included in the CAM invoices.
The CAM audit includes:
- Gathering relevant documents
- Accounting information
- Analyzing each expense item
- Verifying the collected data with the lease terms as part of the validation
Real estate CAM auditing reveals whether the evaluated CAM expenses are as per lease agreement terms.
What are the charges considered under CAM expenses?
Based on the facilities added to the property and shared services norms, the common area maintenance charges depend on the following expenses:
- Property taxes
- Repairs and maintenance
- Administrative fees
- Electricity bill
- Parking lot charges
- Pest control service fees
- Landscaping and water costs
- Salary for maintenance staffs
Landlords and commercial property owners maintain the common areas associated with the property using the CAM charges obtained from tenants each month.
Why are CAM charges open to errors, and how are tenants affected?
The error arises from improper data management, inadequate resources, manual handling, and not following standardized practices while accounting for the CAM expenses. These factors make the CAM reconciliation and auditing challenging, thus making the entire process immensely prone to errors, leading to inaccurate billing.
Additionally, the property managers are often short on time for the bookkeeping process, thus resulting in delayed reconciliation of CAM expenses. Consequently, the misestimated CAM charges fall on tenants, which they are not liable to pay.
Benefits of CAM auditing
CAM audit can unveil every bit of shared area charges considered under CAM expenses that the tenants are expected to pay. CAM auditing can reveal how the tenant’s share of costs was computed and uncover the unethical practices or miscalculations made from the landlord’s end.
By hiring an experienced CAM audit expert or CAM audit service provider, tenants can attain the following benefits:
- Minimize the occupancy cost by identifying the discrepancies in the lease agreement terms and CAM invoice inaccuracies.
- Save costs by uncovering the CAM reimbursement opportunities and negotiating refunds through appropriate reporting.
- Identify and highlight any overcharges or hidden clauses in the CAM lease agreement that could burden tenants with extra charges and expenses.
An audit of CAM expenses also benefits the proprietors. Real estate charges are modified from time to time, making it difficult for proprietors to stay updated on the changes. This ignorance undoubtedly affects the accurate computation of CAM charges.
However, through an accurate assessment of the property, a landlord can also ensure no CAM expenses are missed during the CAM reconciliation estimation.
On the other hand, CAM auditing can help accurately assess the property, check if the square footage measurement used is correct, property taxes and the expenses charged by the landlord are accurate.
Are you looking for a professional CAM audit service?
CAM audit is a complex and arduous process. But, it is crucial to ensure that fair play exists between the proprietor and the tenant.
While several CAM audit software and service providers are available in the market, it is imperative to consider data security.
Seeing how these third-party service providers access your business data, it is necessary to check if they follow robust data security practices with confidentiality to avoid data breaches and prevent future business risks.
At Mobius, we provide real estate services for investors, property owners, tenants, and realtors with the best data security practices and certified CAM auditing specialists. We guarantee business data security and accurate CAM auditing services with our two decades of experience in the field. You can learn more about our services by contacting us.