Running a successful business is challenging. An organization needs to function in a structured way and continuously focus on maximizing business profits and performance. One such industry that needs well-planned management is real estate.
Real estate management mainly involves handling, reviewing, and processing lease documents. The entire process highly correlates with proper data management and financial processing.
Property owners are always concerned with monitoring business operations, collecting revenue, and controlling expenses. Additionally, managing multiple tenants is a challenge for them.
There is no surprise that landlords overlook some of the expenses associated with their properties. One such often overlooked factor is common area maintenance (CAM) expenses. For accurate property expense calculation, CAM audit is crucial in the commercial real estate industry.
What is CAM audit?
Common area maintenance is the property expense charge billed to tenants by landlords to cover the yearly cost spent on property maintenance and development.
Common area maintenance charges are a significant part of tenants’ occupancy costs in the rented property. While detailing CAM expenses, landlords have complete control over them as the agreement doesn’t apply to a full-service lease structure.
Both landlords and tenants can take some control over CAM charges with an accurate audit. Nothing works better than a traditional audit when clearing certain disputes and speculations regarding financial estimation.
CAM audit helps resolve all complexities involved in CAM estimation. Therefore, timely investment in CAM audits can benefit property owners in addressing their expenses and building transparent relationships with tenants.
CAM audit services can mutually benefit commercial property landlords and tenants while maintaining an accurate account ledger in the long run.
Importance of CAM audit
A complete CAM audit identifies the discrepancies in CAM calculation and provides an appropriate solution for overpayment through documented records. Opting for CAM audit services enables tenants to approach landlords for false CAM charges with solid documentation.
CAM audits are not only for tenants, but they equally benefit landlords as well. Based on auditing reports, landlords can correct faulty CAM calculations and refund the approximate cost to tenants from previous billing errors.
They can also identify left-out expenses during CAM reconciliation and efficiently streamline future CAM estimations.
How does a CAM audit differ from a lease audit?
Both CAM and lease audits are essential for real estate companies dealing with lease portfolio management. Although the real-time usage of these two terms is synonymous, each term refers to two different types of lease administration services.
Lease audit
The term lease audit refers to analyzing the financial details mentioned in lease abstracts against original lease documents. The The need for lease auditing services happens when the lease abstracts are outdated or missing any crucial amendments or addendums.
Real estate businesses or landlords approach lease administration service providers for lease auditing to update the lease abstracts and ensure the accuracy.
There are primarily two reasons for landlords and realtors to give importance to lease auditing,
- Abstract the latest amendment/addendum from the original document and update the existing lease abstract.
- Get the entire lease abstract audited and updated to the latest amendments/addendum.
The second reason prevails common as it confirms the accuracy of data in updated lease abstract. Outsourcing the lease auditing services to a reputed lease administration services provider can uncover hidden critical lease data.
An experienced lease administration services vendor can abstract and identify any shortcomings in your original lease abstracts and provide a comprehensive template for quickly capturing essential data from the lease summary.
CAM audit
CAM audit, otherwise known as the desktop audit, is a step involved in the lease administration process that includes reconciling property expenses, rent payables, and receivables.
CAM audit mainly involves auditing the costs spent by landlords on property common area maintenance. It ensures that tenants are not overcharged or undercharged depending on the terms mentioned in the lease agreement.
Tenants usually consign CAM audits. CAM audits are the critical component in rent calculations that involves complicated calculations. The complexity creates more room for errors and misinterpretations, resulting in financial losses for tenants and landlords.
To completely understand the CAM audit records, tenants should know specific terms for auditing. CAM expenses are evaluated on a pro-rata basis, equally shared by all the tenants in the building. For instance, if you rent a space in a building that tenants do not entirely occupy, you are prone to spending more on CAM expenses.
Before renting a commercial space in a building, tenants should check their capital expenditures and differentiate the CAM cost from rent payables.
How do CAM audits benefit both landlords and tenants?
Assigning a professional team to conduct a CAM audit can benefit the tenants. A proper CAM audit can reassess CAM expenses at the microscale and verify shared area charges that affect the tenants.
A CAM record can briefly summarize how the tenant’s share is calculated and uncover unethical practices or miscalculations from the landlord.
It helps to uncover the miscalculations or errors landlords made while reconciling the CAM expenses. Landlords can accurately negotiate property expenses for maximum ROI and charge apt CAM charges on tenants.
A common area maintenance reconciliation and desktop audit are mutually required for landlords and tenants to ensure accuracy and a smooth relationship.
Conclusion
The assessment of CAM charges can be complex and challenging, so it is highly recommended that a professional CAM auditing team perform it.
Suppose you are a tenant or a property owner of a commercial building leasing to multiple tenants. In that case, outsourcing desktop audit services to a renowned lease administration service provider like Mobius can help you overcome the risks of non-compliance and tenant disputes.
Learn more about our entire portfolio of lease administration services.
