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Making the most of your Lease Abstracts with a Lease Management Application

You can leverage your lease abstract to its maximum potential by integrating with a lease management software platform. When it comes to investing in lease management software, you’re spoilt for choice. With so many lease management platforms in the market, picking one lease management software can be overwhelming. Here are a few pointers to consider before investing in a lease management platform.

How and where the data is stored?

Get a thorough understanding of where your lease data will be stored by the lease management platform and in what format. For example, is the data stored locally, or on the cloud? What are the security concerns and how are they being addressed by the lease management software vendor? Getting answers to these questions is really the first step in evaluating a lease platform.

Reporting

Lease management software platforms can help you leverage the data in your lease abstracts through powerful reporting functionality, thus bringing more objectivity to the critical business decision-making process.

Import and export functionality

One of the most important elements to consider before investing in a lease management platform is the import-export functionality. It dictates how your data will be shared and in what format. The information from your lease abstracts will be used across various teams in your organisation such as Finance, Operations, IT, Accounting, Legal, etc. Before you purchase a lease management software, you need to make sure it is compatible with their data format requirements.

Ease-of-use

This is true for any new software purchase and not just lease management platforms. If you really want your investment in the platform to pay off, you want all stakeholders/users to adopt it and ease-of-use is a critical factor determining the adoption rate of any new software. From the lease management software perspective, you need to ensure that it is easy to learn and use in terms of data entry, update, management, and reporting.  Availability of on-boarding and robust/effective training modules is a critical consideration for your investment.

Compliance- FASB capabilities

Your lease administration software must contribute significantly to your compliance efforts. The updated FASB, GASB, and IASB requirements involve a lot of calculations and major changes in how leases are treated. Your lease administration software must be able to take the complexities out of these computations and classifications, helping you meet your compliance requirements effectively. Some examples include supporting multiple lease types (beyond real estate, as now even equipment leases are to be accounted for), automatic identification and classification of leases as per the FASB guidelines (Financial/operating/ capital), the ability to integrate with your accounting system to ensure any relevant change in the lease data (such as a renewal) is reflected in your books of accounts accurately.

Service and support

Investing in a lease management platform is a big decision. You will be using the platform to store critical business information and will need uninterrupted access to it at all times. Hence after-sales service and support become critical components when evaluating lease management platforms. What kind of support does your lease software vendor provide? What is their availability? Are the service and support free, or will you be charged? Getting these questions answered to your satisfaction before you sign the dotted line, is very important.

While your lease abstract will mention the key events/dates/numbers to watch out for, the lease management application offers timely access to those critical data points and also ensures you never lose sight of them by tracking these for your consistently and alerting you on time, so you don’t miss any critical timelines.

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Combating attrition and resource shortage in Lease Administration effectively with a trusted Lease Administration Service provider

Staying on top of lease portfolio takes time and effort–consistently. It is not a one-time process, or something that you do, when time permits. At the same time, there are some aspects of lease portfolio management that demand a lot of time initially and then, only minimal investment of time, on an ad-hoc basis. Lease abstraction is one such element. You will need accurate and comprehensive abstracts of all the leases in the lease portfolio in order to manage your lease portfolio efficiently. However, once the lease abstracts are ready and entered into your lease administration software platform, they’ll most likely only need to be updated in the event of any amendment to the original lease agreement. But, there are other elements in the lease management process that require consistent attention, and this is where most organizations fall behind.

Organizations are often short-staffed when it comes to lease administration due to numerous reasons, one of them being the high cost associated with the lease administration process as a whole. Lease administration resources are considerably expensive. Add to that the training and retaining costs that accumulate over time, the lease administration process in itself becomes costly.

Secondly, the rate of attrition is extremely high in the lease administration sector which affects time-sensitive lease portfolio management tasks as a result of which organizations fall behind on tasks like invoicing, reconciliation, CAM audits, and other timely updates.,  

Outsourcing lease administration functions fully or even partly to a trusted lease administration company can help organizations stay on top of their lease portfolios and, at the same time, enjoy more cost-efficiency, scalability, and flexibility. Even organizations with in-house lease administrators can leverage the expertise and benefits that an outsourced lease administration vendor brings to the table. Some key benefits include-

The obvious reduction in training and HR-related expenses that are a part of a large in-house lease administration team

The flexibility to scale up or down their lease administration resources based on their lease administration needs

Partnering with a trusted lease administration service provider ensures you stay on track and don’t miss critical timelines due to resource constraints and have access to critical lease data that helps drive key strategic decisions in a timely manner.

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CAM Reconciliation: Should you outsource it?

Accurate CAM reconciliation can help you save thousands of dollars annually, especially if you are a retail tenant. Retail leases are vast and have a lot of industry (retail) specific clauses that impact your CAM calculations. While, as a retail tenant, you may agree that CAM reconciliation should be an indispensable part of your lease administration, the question arises as to whether it should be done in-house or outsourced. Our blog this week discusses the benefits of outsourcing CAM reconciliation services to help you understand how you can leverage external resources to your advantage.

Outsourcing your CAM audit and reconciliation tasks to an expert lease administration company helps you in many ways.

It keeps your costs low:

This is one of the major benefits of outsourcing your CAM audit and reconciliation. You save on HR and training costs that you would incur if you hired someone for lease accounting and lease administration in-house.

Expertise:

When you outsource your CAM reconciliation to a lease administration company, you benefit from their expertise. A lease administration company has vast experience across multiple industry types which you can leverage. Your in-house lease administrator may not have that kind of exposure and expertise.

Easier negotiations: 

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 specialize 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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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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Is your data moving homes? Here’s how to ensure you do it right

Are you migrating your lease data from one lease management platform to another? Then make sure you don’t do so blindly. In fact, Data Migration from one application to another is a good opportunity to audit your lease data and lease abstract data, identify mistakes and gaps and fix them. When you are shifting to a new application anyway, why not ensure you are doing it right in every aspect? Importing inaccurate lease data from your old lease application to the new one doesn’t serve any purpose. Also, pay attention to the data structure. Even if your existing lease data is found to be accurate after an audit, you still need to ascertain the accuracy of data structure post-migration by ensuring all data fields are mapped correctly at the time of migration. If you truly want to leverage your new lease management system, you need to make sure you input the right data into it because the output will be largely based on what you feed into the system.

Changes in technology could require you to revisit your leases. For example, migration from spreadsheets to a robust lease administration platform, or even from an existing lease administration platform to another.  Such events could be termed as catalyst events that trigger lease abstract updates. The goal is to ensure that you leverage such catalyst events to benefit your entire organization and to optimize your lease portfolio management process. And, we can help you 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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Data Management in Lease Abstraction

An important aspect to consider when it comes to lease abstraction is lease data management. This has 3 key elements. First is the data type and formatting, the second, document management, and the third and final element is document audit.

Data type and formatting

Your lease abstract templates should allow for effective data searching and meaningful reporting. The data in your lease abstracts is useful only when it can be converted into meaningful pieces of information (Knowledge) that you can leverage to arrive at the right business decisions. The right lease abstract acts as a powerful lease reporting tool allowing you to engage in data-driven decision-making in a proactive manner.  Data cross-linking, reference, and document tagging are elements that can help you accomplish this goal effectively.

Document management

Effective document management plays a crucial role in helping you stay on top of your lease portfolio. Once your team is ready to actually get started with the lease abstraction project, the first step is document organization. This involves a systematic arrangement of all lease documents including amendments, side letters, estoppels, and even relevant email communications where applicable.

Document audit

The next step in this process is to identify the missing documents and data points that are missing as a result of that. Once the document audit is complete, the next step is to scan and upload the relevant documents onto your lease management system. At this stage, it is recommended that you perform a quality check to ensure the documents are legible and if you have used an OCR (optical character recognition) software to digitize them, then the output is accurate. Also, ensure the documents have the right tags and filters. Having the right tags and filters help by improving document accessibility, so you can find what you are looking for, right when you need it.

You can leverage your lease abstract to its maximum potential by integrating with a lease management software platform. While your lease abstract will mention the key events/dates/numbers to watch out for, the lease management application offers timely access to those critical data points and also ensures you never lose sight of them by tracking these for your consistently and alerting you on time, so you don’t miss any critical timelines.

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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Lease Abstract Template Definitions

What to extract? How to Extract? Why to Extract?  

Your lease abstract template is the backbone of your abstraction project, simplifying the complexity of your lease documents and scaling to manage the volume of leases in your lease portfolio. You need to ensure that your abstraction template captures all the relevant information. While some core fields such as rent, options, key dates, etc., are needed irrespective of what industry you belong to, there may be fields that are important for your business or industry in particular. Apart from such fields, there may be certain, less common clauses in some leases that must be captured.

So, the first step to ensuring you are capturing the right data is

Being able to identify what data matters to you

Having a template that caters to your needs by capturing that information

You can do this by defining the lease abstraction template objectives clearly.

Defining the lease abstraction template objectives

Lease abstraction objectives can be broadly categorised into four categories.

Financial

This involves tracking and optimizing every aspect of the company’s portfolio of leased assets that will add value to the entire leased portfolio and can also make a huge impact on the outcome of the financial report. Examples include rent and other payment obligations, Security Deposit, Tenant Improvement allowance, etc,.

Operational

This involves tracking critical lease dates and highlighting potential liabilities, which, if missed could result in serious financial implications to a company’s bottom line. For example, missing notice period, renewal options, last date of rent payment, etc., or, not understanding or accruing a potential lease liability and its obligations such as using the premises for the sale of goods or services not permitted in the lease.

Compliance

Whenever there’s a change in regulatory requirements that impacts how your leases and the components therein are shown in the books of accounts, it will result in some changes in your lease abstracts. The most recent example is the FASB/IASB regulations that categorised the leases as operating leases, capital leases, leases with a right to purchase, etc., thus bringing about changes in the way they are accounted for, in effect, requiring the lease abstracts to be restructured to comply with them.

Emergencies

The COVID-19 Pandemic or Future COVID-like challenges

The COVID-19 pandemic brought to light the need to explore various clauses, which were otherwise, probably not considered important to be included in lease abstracts. An example is when, during the peak of the pandemic a lot of tenants, especially in the retail industry, had to act swiftly to exercise the options in their leases that offered them some respite as their finances hit rock-bottom due to lock downs and shelter-in-place restrictions brought on by the pandemic. Examples include exercising the Force Majeure clause that may allow the tenant to terminate the lease before the end of the term or allow for rent abatement's or suspension in exigencies such as the pandemic.

For your lease abstracts to be accurate and truly serve their purpose, the template has to reflect all information that is relevant to you. This is where a lease abstraction partner with expertise, experience, in-depth knowledge, and perspective of the process can add value by streamlining your lease abstraction process and designing optimal lease abstraction templates.

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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Keeping your lease portfolio updated is not a one-time process. It entails updating your lease abstracts with the information in newly executed amendments, abatements, or deferral clauses.

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How can lease administration software platforms make your lease portfolio management process more efficient?

Staying on top of your lease portfolio can be challenging, especially when your lease portfolio consists of hundreds or even thousands of leases spread across the country or the globe. Lease abstracts help by ensuring that all the key financial and non-financial information contained in your leases are available for your use in a clear and concise manner. 

But, there’s another key component that helps keep your  lease portfolio updated–lease administration software platform. What do you do with all the information provided by the lease abstracts, where do you store the lease data, how do you leverage the data and how do you ensure they are accessible whenever you need them? A lease administration software platform provides answers to all these questions.

Here are a few ways in which a lease administration platform makes the lease portfolio management process simpler, more efficient and effective.

A single platform for all your lease data

Lease administration platforms act as a single repository for all your key lease data. You can store digital copies of your leases, their related documents and the lease abstracts in the lease administration platform. This ensures that all critical information related to your leases is easily accessible and available in one place. And, it is not just for your real estate leases; you can use a single lease administration software platform for storing all your leases and leases abstracts, including equipment leases.

Critical date alerts

Lease administration software platforms have the ability to read the information in your lease abstract template and use it to generate alerts and notifications for critical events such as notices, expiration dates, invoice due dates, renewals and other obligations. This helps ensure that you don’t miss any critical dates. Missing critical dates can have serious consequences, such as penalties or even lease termination.

Standardized lease data repository

Having a single lease administration platform for all your lease abstracts brings consistency to your lease data, as information is stored in a template that’s standard for all leases.

Manage lease expenses better

Lease administration software platforms help ensure your payment schedules are on-track and accurate. They allow you to effectively manage your lease-related expenses and payments such as regular rental payments, percentage rent calculations, Common Area Maintenance (CAM) charges and reconciliations.

Understand your leases better

Modern lease administration software platforms are equipped with various tools, calculators and interactive dashboards that help you understand your leases better. They offer you a 360-degree view of the entire lease portfolio as well as each individual lease. You can analyze the ROI on your leases based on the outgoings connected to them. You can also plan and budget more accurately because you get a clearer prediction  of your upcoming lease expenses.

Compliance

Meeting the compliance requirements related to leases can be challenging, especially if your lease portfolio is large. Lease administration software platforms are now also equipped with the required mechanisms to help you meet the FASB/GASB and ASC 48 compliance requirements.

So, investing in a good lease administration software platform is a must to stay on top of your lease portfolio. But that isn’t enough. You need to have an experienced lease administration partner who can help you optimize  your lease administration software so you get the best ROI.

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Budgeting for Common Area Maintenance (CAM) Expenses

Common area maintenance (CAM) charges are the tenant’s share of expenses that they owe the landlord. CAM charges are paid by tenants to reimburse the landlord for expenses incurred by them for

Maintaining common spaces such as elevators, lobbies, stairwells, parking, etc.

Services that benefit all tenants such as snow removal, trash removal, security, etc.

CAM charges are divided among all tenants based on their pro-rata share, which is calculated based on the area leased by the tenant. A tenant with a larger leased area will pay a greater percentage share of CAM expenses than one with a smaller area.

Budgeting in CAM

In order to help tenants and landlords plan better and ensure no single party has to bear a load of a sudden, unforeseen large expense in the form of CAM charges, landlords resort to budgeting. Budgeting for CAM involves estimating the CAM expenses for the year for the entire property, computing each tenant’s share of expenses based on the estimate and sharing that with them, so they can prepare for the expenses accordingly and also make payments to the landlord as stipulated in the lease. 

The CAM expense budget is usually prepared based on the previous year’s actual expenses incurred. At the end of the year, the estimates are verified against the actual expenses incurred by the Landlord and invoices are raised to the tenant for any additional charges that need to be paid. Similarly, in the event of any overpayment, the same is credited back to the tenant.

This is where CAM reconciliation enters the picture. Tenants don’t have to simply take the landlord’s word for it. They have every right to verify if the landlord’s computation of CAM expenses is accurate. In fact, they should, because the onus of proving otherwise is on the tenant. Retail tenants with a significant number of leases can save hundreds of thousands of dollars through CAM reconciliation alone. The challenge is, CAM Reconciliation has to be done within the stipulated time frame offered by the lease, which usually varies between a month to three months, at the most. However, this is not something tenants can let slide because it has far-reaching implications. 

For example, in the case of leases where CAM expense hikes or rent increases are calculated based on the previous year’s share, any error in CAM computation can embed itself in the lease affecting pushing the overall lease cost high, impacting the lease ROI negatively in the long run.

CAM overpayments are not uncommon–especially in the case of retail tenants because their lease portfolio is usually quite vast. Keeping track of their lease expenses across hundreds or even thousands of leases spanning across multiple locations is tricky. Even if you invest in a good lease portfolio management system or lease administration software, there’s a considerable amount of human effort involved, which makes it challenging to identify overcharges and bring them to the landlord’s notice for rectification. 

Considering CAM reconciliation is an annual exercise, it makes sense to outsource it to a trusted lease administration service provider who can handle the entire process, right from scrutinizing the invoices raised by the landlord, re-computing the tenant’s pro-rata share of the expenses to coordinating with the landlord’s lease administration team in the event of any discrepancies or need for further clarification.

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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Best practices for CAM reconciliation from the Landlord’s perspective

Usually, CAM charges and reconciliation are discussed a lot from the tenant’s perspective. After all, the onus of pointing out any discrepancies in the CAM calculations lies with the tenant and not the landlord. However, the CAM reconciliation season can be quite a handful for landlords as well.

 When clients point out inaccuracies or inconsistencies in CAM computations, the Landlord has to cross-verify if the client’s claims are true, and if so, then make the necessary changes. Incorrect CAM computation is a major hassle for the Landlord as well. Our blog this week discusses some best practices that Landlords can follow to ensure their CAM charges computation is accurate.

Check your invoices and general ledgers

Start by checking your books of accounts and invoices that came in. CAM charges are basically common area maintenance expenses that are divided amongst the various tenants on the property. CAM expenses include various components such as common area utilities, elevator maintenance, parking lot maintenance, centralized HVAC charges, snow removal expenses, etc. The elements included in the CAM header may vary from lease to lease. But, the point is, no matter what is included in the CAM header it would have an invoice. 

For example, the utility company would’ve invoiced you on a monthly/annual basis for the common area utility consumption, you may have an invoice from the trash or snow removal company, etc. So, the first step in ensuring your CAM computations are accurate is to review your ledgers and compare the amount therein with the invoices you received from the vendor who provided those services to you and make sure that you have not missed out or overcharged your tenants for any of them.

Occupancy throughout the financial year

Occupancy is a key factor affecting the pro-rata share of tenants when it comes to CAM charges. Depending on the gross-up terms and conditions agreed upon between the landlord and the tenants, the tenant’s pro-rata share of CAM expenses will vary if the occupancy rate of the premises fluctuates. In order to ensure your CAM computations are accurate, ensure that you have taken into consideration any changes in occupancy rate including move-ins, move-outs, expansions, contractions, etc.,

Pro–rata share calculations

Pro-rata share calculations are, of course, the cornerstone of CAM charges computation. Ensure you have calculated the pro-rata share accurately for each tenant because that determines the final amount they owe you as CAM charges.

Exclusions and caps

In order to ensure the accuracy of your CAM calculations, make sure you pay attention to exclusions and caps. Exclusions in your leases will point out to expenses that are not a part of the CAM header. You won’t be able to pass on expenses that are excluded to tenants. Similarly, your leases will also specify caps, if any, on your CAM charges. Caps force you to limit CAM expenses to a certain pre-approved threshold, which is usually a percentage of the previous/base year’s expenses. Make sure your CAM computations are in line with the caps specified in your leases.

Irrespective of whether you are a landlord or a tenant, CAM computation and reconciliation can be complicated and time-consuming and can put a severe strain on your internal lease team during the audit season. In such a scenario it may be beneficial to outsource your CAM audit and reconciliation tasks to an expert lease administration company.

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Understanding different types of CAM Computations

CAM or Common Area Maintenance charges are a critical component of Triple Net leases. Our blog this week discusses the various types of CAM calculations that may find their way into your lease. But, before you proceed, if you’d like a quick refresher on what CAM constitutes, please check out our last blog post, CAM (Common Area Maintenance): An Overview.

Fixed CAM

Fixed CAM refers to a fixed amount of CAM charges that would be levied on the tenant. When CAM is computed on a fixed basis, there are some advantages to both parties, i.e, the landlord and the tenant. For the tenant, there’s a sense of certainty and security in the sense that the tenant doesn’t have to pay more even if their pro-rata share becomes higher owing to the lower occupancy rate of the leased premises. This is because, in the case of Fixed CAM, regardless of the occupancy rate and the tenant’s pro-rata share they will continue to pay the CAM amount agreed upon in the lease. Also, since the different expenses under the CAM header are not calculated and consolidated to arrive at the CAM share of the tenant, there’s no scope for CAM audits or year-end reconciliations and adjustments. 

From the landlord’s perspective, irrespective of the actual expense incurred, they will get the fixed CAM amount, which will work in their favor if the actual expense incurred is less than the fixed amount. This arrangement works best when the tenant and landlord have a long-standing, trusted relationship. The fixed CAM amount is generally what is considered fair and reasonable by both parties. Also, sometimes, the parties may agree to include a clause to safeguard themselves and include certain expenses under the CAM header in the Fixed CAM category and charge/pay some others on a pro-rata basis based on the actual expense incurred.

Limiting CAM Charges when not opting for Fixed CAM

Fixed CAM is not very common and tenants usually opt to pay for CAM expenses as a percentage based on their pro-rata share. However, in such cases, there’s always an underlying fear of the lease ROI being affected negatively for the tenant due to unforeseen increases in CAM charges. This challenge is resolved by putting a cap on CAM charges. There are different ways in which CAM charges can be capped to safeguard tenants’ interests.  Any CAM charge hikes are limited to a pre-decided percentage of the base year’s CAM expenses or the previous year’s CAM expenses. The percentage rise may be calculated on a cumulative or compounded basis, depending on the lease agreement.

If, as a tenant, you are not opting for Fixed CAM, please be sure to conduct regular CAM audits and reconciliation to ensure you are not paying more than what you owe in terms of CAM chargers. You also need to understand the various factors and clauses in the lease that will affect your share of CAM charges.  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.

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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.

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