CAM (Common Area Maintenance) Reconciliation is a yearly process used by landlords in order to true up the actual expenses vs. the estimated amount paid by the tenants. Tenants are typically charged a monthly "Base Rent" with CAM estimated charges which are labelled under "Additional Rent". The estimated amount comes from the previous year's reconciliation of all the actual expense amounts paid, split into monthly payments for the new year. At the end of the reconciliation cycle, a landlord may reimburse a certain amount to the tenant. This will only happen if the expenses accumulated are less than the actual amount needed to be paid. It is also possible for a tenant to owe the landlord, requiring them to pay the resulting balance after the reconciliation has completed.
CAM expenses are often separated into two categories, uncontrollable expenses and controllable expenses. Each expense must be labelled under their own codes or general ledger accounts. These expenses include but are not limited to the following areas of maintaining commercial property:
Uncontrollable CAM expenses: Property taxes and Insurance.
Controllable CAM expenses: Landscaping, Property lighting, Administrative, Janitorial, Security, and Maintenance.
All of these expenses are typical in managing a commercial property. Of course, no one wants to pay a large sum in a short period of time, without proof or terms agreed upon from a lease. Proper organization and tracking of each expense account is important by the time CAM reconciliation is due.
The CAM reconciliation process begins by pulling all of the paid bills from the current year and finding the total actual amount. This is typically divided by the square footage (sqft) percentage of a tenant's space by the total sqft of the building. The result is compared against the total estimate paid so far. And thus, a reimbursement is owed to either the tenant or landlord and notice of the new year's estimated charges are provided. A notice and/or letter of CAM reconciliation will be sent one to three months before the end of the year and is followed in accordance with the lease agreement.
Some landlords may, at their own means, reconcile CAM or use a bookkeeping service. However, a Property Management company can provide proper knowledge and resources for services for all aspects from accounting, communication, awareness of the law, and ensuring the terms of the lease are maintained each year. With the right amount of notice in advance, it will allow both sides of the lease to have a clear idea of their sustainability for the following year.
We wish you all a Happy Holidays and a cheerful New Year!
About CapStar Commercial Realty
Since 1994, CapStar Commercial Realty is a full service commercial real estate firm headquartered in Gaithersburg, MD, operating across the District of Columbia, Maryland, and Virginia. CapStar assists small and large companies, from local to an expanding brand, with services in leasing, sales and acquisitions, property management, business acquisitions, consulting, and a unique specialty in restaurants. CapStar’s range of services and proprietary database help sellers, buyers, landlords, and tenants, identify real estate opportunities in retail, office, industrial, land, and condominiums.