CAM Reconciliations & How They are Used
CAM (Common Area Maintenance) reconciliation is the process of adjusting the annual CAM charges that a tenant has paid during a given year, based on the actual expenses incurred by the landlord.
In commercial real estate, landlords typically charge tenants CAM fees to cover the cost of maintaining and operating shared common areas such as lobbies, hallways, elevators, and parking lots. These fees are usually estimated and paid monthly by the tenants as an addition to their base rent.
At the end of the year, the landlord must reconcile the estimated CAM charges with the actual expenses incurred during the year. This process ensures that the tenant pays only their fair share of the expenses and that the landlord does not overcharge the tenant. The CAM reconciliation statement summarizes the actual CAM expenses incurred and compares them with the estimated charges paid by the tenant.
It is important for property owners to understand the CAM reconciliation process because it impacts their income and cash flow. If a landlord fails to reconcile CAM charges, they may be undercharging tenants, resulting in a loss of income. Conversely, overcharging tenants can lead to tenant disputes, potential legal action, and damage to landlord-tenant relationships. Therefore, it is critical for property owners to accurately and efficiently reconcile CAM charges to ensure that they are fairly compensated for their property's expenses.
Let's say a tenant has a lease agreement that includes a base rent of $1,500 per month and an estimated CAM charge of $300 per month. The tenant has been paying $1,800 ($1,500 base rent + $300 CAM charge) per month for the entire year.
At the end of the year, the landlord calculates the actual CAM expenses for the year and finds that they were $3,500 higher than the estimated CAM charges.
Therefore, the tenant's CAM reconciliation would be: Actual CAM expenses for the year: $3,500 Estimated CAM charges paid by tenant: $3,600 ($300/month x 12 months) CAM reconciliation: $3,600 (estimated CAM charges) - $3,500 (actual CAM expenses) = $100 credit to tenant
In this example, the tenant would receive a $100 credit towards their next CAM charge because they overpaid their estimated CAM charges throughout the year.
Conversely, if the actual CAM expenses were lower than the estimated CAM charges, the tenant would owe additional fees to cover the difference.
For example, if the actual CAM expenses were only $2,800, the CAM reconciliation would be:
Actual CAM expenses for the year: $2,800 Estimated CAM charges paid by tenant: $3,600 ($300/month x 12 months) CAM reconciliation: $3,600 (estimated CAM charges) - $2,800 (actual CAM expenses) = $800 owed by tenant.
In this scenario, the tenant would owe an additional $800 towards their CAM charges because they underpaid their estimated CAM charges throughout the year.
If you have any questions about this article or would like to discuss a scenario of your own with our team, please feel free to contact Colin Dubel at email@example.com or 949-735-6415.