Engaging an independent accountant to report on common area maintenance (CAM) costs can add transparency and accountability to charges allocated to tenants. Accountants have flexibility in the types of engagements they can perform to work with owners or tenants to customize these engagements.

Key Insights

• CAM costs include operating and overhead expenses incurred in the upkeep of space used by all tenants of a property. The methods to accumulate and allocate these costs may be specified in lease terms or determined by property management.
• Property owners/management or tenants can engage independent accountants to apply procedures and report findings on CAM cost allocation schedules.
• These reports can make tenants aware of the types of costs incurred and the methods used to determine fees charged to cover these costs. Transparency in costs and allocations can help avoid disputes and build trust between owners and tenants.
• Review current practices for determining CAM charges and consider engaging an independent accountant to improve the tenant – owner relationship.

What are CAM charges?

While most lease arrangements are long-term in nature and have fixed annual rents, there is one item of variability to the rent charged each month, common area maintenance costs (CAM). Common areas are spaces used or enjoyed by all tenants such as parking lots, lobbies, hallways and elevators. Costs required to maintain these areas vary depending on the type of property but often include utilities, landscaping, security, janitorial and repairs.

Many lease agreements are structured to pass along the three components of operating costs to tenants, leading to the term “triple net”. To normalize rents, property management estimates each cost component and assesses the charges monthly. Actual costs are accumulated, and each tenant’s share is determined following allocation methods that normally involve the square footage leased during the period. Variances from estimated monthly charges may lead to additional assessments or refunds, depending on the terms of the lease. Because these charges may be substantial or unexpected and the books and records are maintained by the landlord, they are closely scrutinized and often the source of tensions between owners and tenants.

Best practices for managing CAM charges

To avoid disputes, owners and tenants should follow best practices to manage CAM charges. Practices to consider include:

• Establishing clear and concise terms in the lease
• Using sound assumptions to develop cost estimates
• Presenting CAM charges distinctly on monthly invoices or statements
• Following consistent methods for accumulating and allocating costs
• Keeping accurate records of assessments, collections, costs and refunds

Role of the independent accountant

Many lease agreements provide tenants the opportunity to audit or review the CAM cost allocations. Landlords can strengthen their tenant relationships and tenants can hold the Landlords accountable to the terms of the lease by engaging an independent accountant to report on CAM charges. In a typical arrangement, the landlord will provide a schedule detailing the actual costs and allocations. The requesting party will direct the independent accountant to perform certain procedures and any findings are included in a report that can be provided to tenants or the landlord. Common procedures include:

• Reading lease agreements
• Tracing amounts between the CAM cost schedule to disbursement records and supporting documents
• Recalculating computations of CAM allocations based on the terms of the lease agreement

How we can help

Combined with a deep knowledge of the real estate industry, our professionals can help you design an engagement that can add credibility and accountability to your CAM charges.