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Lease Abstraction Project Management and Communications

A key aspect to consider before you sign on a lease abstraction partner is their project management and communications protocol.

Lease abstraction

Familiarize yourself with your lease abstraction partner’s abstraction process. Learn more about the team that will be deployed by them to work on your project. Get more information on the team size, availability, point of contact, etc.,

Quality control

This is one of the most important parts of your lease abstraction project. Ask your lease abstraction partner about their quality check process. Find out how many tiers of quality check your lease abstraction partner will be performing as part of the SOP. Check if they offer a 100% accuracy guarantee and have errors and omissions insurance. After all, when it comes to lease abstracts, accuracy is really everything and inaccurate data can have far-reaching effects, including heavy financial losses and sometimes, even lawsuits.

Data security

Data security is a very real concern when outsourcing your lease administration and abstraction processes. Make sure you are comfortable with your lease abstraction partner’s data storage, handling, and disposal process.

Communications

Find out how many points of contact will be provided to you. You would need at least 2 so you can reach out to one, in the event the other is unavailable. Also, check their availability in terms of timing–a key factor to consider if your lease abstraction partner operates offshore.

Lease portfolio management is an ongoing process and not a set-it-and-forget-it kind of activity. 

So, if you are collaborating with a lease abstraction/administration vendor, it makes sense to sign on someone who can offer quality, ongoing lease administration and support you throughout the entire lease lifecycle consistently. And, we do that!

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit, and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking strategic advantage. All client projects are performed in-house.

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CAM (Common Area Maintenance): An Overview

CAM or common area maintenance charges are an important element of the rent roll. As the name signifies, CAM charges refer to the expenses incurred by the Landlord on account of maintaining the common areas of the leased premises. Since these areas are common and shared by all tenants, landlords usually split the common area expenses amongst all the tenants. Sounds simple, doesn’t it? However, CAM is one of the most complex elements of the rent roll and it is extremely important from a tenant’s perspective to get it right. This is because there are various factors influencing the CAM charges right from how it is calculated to what elements are included therein. It is not uncommon for Landlords to overcharge their tenants when it comes to CAM expenses because of oversight or confusion regarding how the CAM expenses are to be calculated.

How are CAM charges calculated?

CAM charges are usually calculated on a pro-rata basis, meaning, the total CAM expenditure is divided amongst the tenants in the building based on the ratio of their leased space. For example, a tenant who has leased 2000 square feet in a building will pay a higher CAM amount than one who has leased 1000 square feet of space in the same building. Another factor that can affect the CAM charges’ calculation is the occupancy rate. Since the entire CAM expense is shared on a pro-rata basis among tenants, a higher occupancy rate translates to lesser CAM charges per tenant, as there are more tenants sharing the load.

What elements constitute CAM charges?

Usually, CAM charges include the costs associated with maintaining the common areas and facilities of the leased premises. This includes lobby areas, stairwells, elevators, parking lots (in some cases), etc., Generally, CAM charges don’t include any capital expenditure incurred with respect to the common areas, though they may be amortized by the landlord over a period of time.

Are CAM charges the same as operating expenses?

Though sometimes used interchangeably, CAM charges are not the same as operating expenses. The term, operating expense is much more vast and covers additional expense items apart from those included in under the CAM charges head. Examples include Taxes and insurance.

Are you being overcharged? Your lease has all the answers!

At the end of the day, the answers to all the questions regarding CAM lies in your lease. Your lease specifies everything you need to know about your CAM expense calculations such as,

What constitutes CAM in your case?

How are the CAM charges calculated?

Are there any specific exclusions to the CAM charges head?

To stay on top of your leases from the CAM charges perspective, you need to do two things. The first is obviously getting your leases abstracted. A lease abstract will provide you quick access to the CAM charges data that you need and, the second step is to get a CAM audit done annually. CAM audits and reconciliations by a reputed lease administration services provider can help you save hundreds of thousands of dollars annually, especially if you are a tenant with leased premises across multiple locations. Plus, If there are any discrepancies in your CAM calculations, the lease administration company to which you have outsourced the CAM reconciliation work will be the one getting in touch with your landlord. In general, this scenario is better accepted by Landlords, as the lease administration company comes across as a more reliable, third-party than your own internal team when reaching out to your Landlord. Plus, lease administration companies specialise in this kind of communication and usually have a process or protocol which is generally well-received by the other party.

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A Quick CAM Audit checklist for tenants

Common Area Maintenance (CAM) charges form a major chunk of your lease costs. It is not uncommon for tenants to find that they have been overcharged erroneously by the Landlord. In our blog this week, we provide a checklist that tenants can refer to when verifying their CAM charges. This checklist highlights the most common areas of error when it comes to CAM Charges.

New tenants moving into the property mid-lease year or existing tenants expanding their area

Generally, CAM expenses are shared on a pro-rata basis among all the tenants in the premises. This means, if you move into an empty building or a building with fewer tenants, the CAM charges will be higher. At the same time, if new tenants move into the premises, the pro-rata share per tenant will decrease as the total CAM expenses will now be shared by all the tenants, including the new ones. So, one of the areas to consider when auditing your CAM expenses is, if there were any new tenant move-ins during the lease year. Along the same lines are expansions. Sometimes, an existing tenant may lease out more area in the premises which will again affect the CAM share of other tenants by lowering their CAM expense.

Amortizations

Sometimes, leases allow landlords to charge tenants for certain capital expenditures that they incur. Usually, such expenses are a result of specific capital improvements undertaken by Landlord for the tenant(s). The Landlord may then amortize the amount over the entire lease year. As a tenant, you may want to confirm if the amortization calculations are accurate. Similarly, as in the case of CAM, if the capital improvements pertain to a common area or all leased locations within the premises, then the amortization amount may also differ once the occupancy in the leased premises increases.

Expense caps

Another thing to consider is the limit on expenditures, commonly referred to as expense caps. Check your lease agreement to understand the kind of expense cap it enforces. When you have an expense cap clause, it specifies the percentage by which the Landlord can hike the CAM charges every year. Make sure the calculations presented by your landlord are in line with the expense caps your lease specifies.

Exclusions

Last, but not least, check for any exclusions that may have been wrongly charged to your account. Leases often explicitly state certain expenses that the landlord cannot charge the tenants for. Check every item in your CAM/Operating expense header to ensure that they are not a part of your exclusion clause.

Though helpful, this checklist is just a starting point. A detailed CAM audit and reconciliation will identify any discrepancies that may exist across various areas and help you save significant amounts of money.

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a  trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking a strategic advantage. All client projects are performed in-house.

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