What Are CAM Reconciliations in Commercial Real Estate?

Common Area Maintenance (CAM) reconciliation is an annual process in commercial real estate that adjusts payments for shared property expenses. This reconciliation ensures that both property owners and tenants contribute fairly to the upkeep of a commercial property’s common areas. It aligns estimated charges collected throughout the year with the actual costs incurred for maintaining these shared spaces. The process is a standard component of commercial lease agreements, impacting tenant financial obligations and landlord operational recoveries.

Understanding Common Area Maintenance Charges

Common Area Maintenance (CAM) charges represent the costs associated with operating, repairing, and maintaining spaces within a commercial property used by all tenants. These “common areas” typically encompass shared facilities, including lobbies, hallways, public restrooms, elevators, parking lots, and landscaped grounds. They can also extend to amenities like fitness centers, conference rooms, and building exteriors.

CAM expenses generally include utilities for common areas like electricity, water, and gas. Also included are cleaning and janitorial services for shared spaces, security personnel and systems, and routine maintenance and repairs for the building’s structure and systems, such as HVAC. Property taxes and insurance premiums for the entire property are also frequently passed through to tenants as part of CAM charges. These charges are usually calculated based on a tenant’s proportionate share, determined by their leased square footage.

Purpose and Timing of CAM Reconciliations

CAM reconciliation is necessary because landlords collect estimated common area maintenance charges from tenants throughout the year. These estimates are often based on historical data or projected costs. Actual expenses can fluctuate due to unforeseen repairs, changes in utility costs, or other operational variations.

The reconciliation process compares estimated amounts collected from tenants with the actual costs incurred by the landlord over a specific period, typically a fiscal year. This ensures tenants pay only their proportionate share of true expenses and allows landlords to recover legitimate operating costs. CAM reconciliations are generally performed annually, most commonly after the close of the landlord’s fiscal year, with statements often due to tenants within 30 to 90 days after December 31st.

The CAM Reconciliation Process

The CAM reconciliation process begins with the landlord or property manager gathering all financial data related to common area expenses. This includes invoices, utility bills, and maintenance records that substantiate the actual costs incurred for the reconciliation period.

Once all actual expenses are collected, they are totaled to determine the comprehensive cost of operating and maintaining the common areas for the year. This total is then compared against the aggregate estimated payments collected from all tenants. The next step involves prorating these total actual expenses to each individual tenant, typically based on their leased square footage.

Following the proration, a calculation determines if each tenant has an overage or an underpayment. If actual expenses exceed estimated payments, the tenant owes additional funds. Conversely, if estimated payments surpass actual expenses, the tenant is due a refund or credit. Detailed reconciliation statements are then issued to each tenant, outlining the calculations and the resulting balance.

Reviewing a CAM Reconciliation Statement

Upon receiving a CAM reconciliation statement, tenants should verify that the charges align with their lease agreement. They should confirm what types of expenses can be charged as CAM and their agreed-upon proportionate share. The lease also dictates any caps on controllable expenses or exclusions for certain capital expenditures.

Tenants should review the categories of expenses included in the statement to ensure they are legitimate common area charges per the lease terms. A comparison between the actual expenses and estimated amounts paid helps identify significant variances.

Tenants should also check the mathematical accuracy of the proportionate share calculation and the final overage or underpayment amount. Many leases grant tenants the right to request supporting documentation, such as invoices and receipts, to verify the reported expenses.