What is CAM?

Chip Daege | 28/08

What is CAM?

 

Understanding Common Area Maintenance (CAM) Reconciliations


First of all - What is CAM? 
Common Area Maintenance (CAM) refers to the costs associated with maintaining the common areas of a commercial building. These areas might include hallways, lobbies, elevators, parking lots, and exterior landscaping.


Why is Reconciliation Needed? 
In commercial leases, there's often a clause where the tenant is responsible for contributing to the CAM costs. This means the landlord will collect a base rent and an estimated CAM charge. At the end of the year, the landlord reconciles the actual CAM costs against the estimated charges. If the actual costs are higher, tenants may need to pay additional CAM charges.


Steps Involved in CAM Reconciliation:

  1. Gather Necessary Documents:
    • Lease Agreement: This outlines the specific terms related to CAM charges, including how they are calculated and when they are due.  Ideally, the lease agreement has already been abstracted with the pertinent CAM-related clauses laid out for ease of reconciliation.  If not, you must refer to the lease for this process.
    • CAM Schedule: This provides a breakdown of the estimated CAM costs for the year.  Typically, this will come in the form of an accounts receivable report for the tenants in the building for the expense span.
    • Financial Statements: These include the landlord's income statement and balance sheet, which detail the actual expenses incurred.  You’ll also want the detailed general ledger.

  2. Review and Verify Expenses:
    • Examine each expense: Make sure it's a legitimate CAM cost and that it aligns with the lease agreement.
    • Check for inconsistencies: Compare the actual expenses to the estimated amounts on the CAM schedule.
    • Verify documentation: Ensure that each expense is supported by appropriate documentation (e.g., invoices, receipts).

  3. Calculate Actual CAM Costs:
    • Add up all legitimate CAM expenses for the year.
    • Subtract any income generated from common areas (e.g., parking fees, vending machine revenue).
    • Determine the total actual CAM costs.

  4. Allocate Costs to Tenants:
    • Refer to the lease agreement to determine how CAM costs are allocated among tenants.
    • Common allocation methods include:
      • Pro rata based on square footage: Tenants pay a portion of CAM costs based on the size of their leased space.  This is the most common method.
      • Common area factor: A factor is determined based on the ratio of common area to total rentable area, and tenants pay a portion of CAM costs based on this factor.

  5. Compare Actual to Estimated Costs:
    • Subtract the estimated CAM charges from the actual CAM costs.
    • If the actual costs are higher: Tenants will owe additional CAM charges.
    • If the actual costs are lower: Tenants may receive a credit or refund.

  6. Prepare a Reconciliation Statement:
    • Create a detailed document outlining the calculations and findings.
    • Include the following information:
      • Total estimated CAM charges
      • Total actual CAM costs
      • Allocation method used
      • Amount due or owed by each tenant
  7. Notify Tenants:
    • Send the reconciliation statement to all tenants.
    • Clearly communicate any additional charges or credits.
    • Provide a deadline for payment or dispute resolution.


Key Considerations:

  • Lease Language: Carefully review the lease agreement for specific provisions related to CAM charges, allocation methods, and dispute resolution.  The lease agreement overrides company policy.

  • Timeliness: Ensure that the reconciliation is completed and communicated to tenants within the timeframe specified in the lease.  Some leases have monetary penalties to the landlord for untimely reconciliations.

  • Transparency: Provide clear and detailed information to tenants about the CAM costs and the allocation process.  This usually comes in the form of a rent roll substantiating the tenant’s area and the total building area.

  • Accuracy: Double-check calculations and ensure that all expenses are properly documented and verified.

  • Dispute Resolution: Be prepared to address any tenant disputes or questions regarding the reconciliation.


By following these steps and considering the key factors, you can effectively complete a CAM reconciliation and ensure fair distribution of costs among tenants.  Mexus Accounting Services personnel have the experience to get this done for you.  
Landlords in Buffalo, New York and Toronto, Ontario – and beyond trust us for this tedious yet important process.


 
What is Common Area Maintenance (CAM)?

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