CAM Audit: What is it and Why is it Important?

A business premise plays a vital role in an organization’s market survival, making its maintenance and management a pivotal practice. No matter your business scale, a business owner is always burdened with an abundance of responsibilities. From monitoring business funds, managing revenue to controlling the expenses, a business owner always has his hands full.

As the owner partakes in numerous activities, it is natural for him to overlook several underlying factors affecting his venture. One such underlying factor is CAM (Common Area Maintenance), and you must be familiar with the term, primarily if you deal within the commercial real estate industry.

CAM expenses are the accumulated charges regarding the shared area within a premise. The CAM property service areas generally comprises of washrooms, elevators, parking areas, and lobbies. CAM charges are integral as they help in outlining the tenants’ share in the overall expenses. Furthermore, they also aid the landlord in distributing the costs amidst the numerous tenants. CAM charges calculation is an important need for any real estate business as it simplifies operations and allows the people concerned to predict and forecast the future and estimate expenses as well as revenue.

Highlighting the mentioned uses must have helped you perceive CAM charges in a different light, but if you are still hesitant, then let’s entertain some scenarios. What happens if your landlord is trying to charge you unethically? Or how would a landlord ensure he has computed the calculations accurately?

Well, nothing beats a good old audit when it comes to clearing everyone’s speculations and doubts regarding any cost computation. Therefore, every business owner should invest in a timely CAM audit as it not only benefits them to facilitate their expenses but also aids the tenants to comprehend the process. CAM Audit services are a need for both tenants and for the business owner as it helps to simplify the overall aspect of maintaining accounts in the long run.

Importance of a CAM Audit

From a Tenant’s Perspective

“What is CAM in Real Estate?”, is a question many find themselves asking. A CAM audit reassesses every calculation regarding every shared area charge that directly affects the tenants. It also helps them comprehend how their share was computed and whether it is correct or not.

An audit can also uncover any unethical practices or a simple miscalculation on the landlord’s part. Furthermore, the audit also eradicates every shred of doubt between the landlord and tenants, simplifying the refund process.

From a Landlord’s Perspective

A landlord can benefit from a CAM audit because it can confirm true expense recovery and transparency has been achieved. The dynamics of a commercial property’s operating and maintenance cost can force a property owner to track adjustments to operating costs. Without owner oversight, landlords can lose an opportunity to generate revenue and initiate disputes with his/her tenants because of inaccurate CAM charges. That’s why having the right functional Commercial Real Estate Accounting in place is extremely important. Through the right accurate accounting, a landlord can streamline the management of his/her CAM costs, abide by the terms of the lease, and maximize the revenue of his/her property. The more that landlords learn about CAM in commercial real estate the more effectively they can expand their portfolios and the more sustainably they can grow their competitive edge within the marketplace.

A CAM audit comes in handy in these scenarios as dysfunctional CAM charges can negatively affect a property’s value. The common area maintenance accounting ensures that the costs are computed following the current rates and the latest lease terms. It helps the landlord get an accurate assessment of his property and the expenses he should be charging.

Alongside the ongoing interest rates, a landlord can also avail additional benefits he has ignored previously. One good example of this would the services related to water, gatekeepers, and electricity. Depending on the tenants’ occupancy density, these costs can directly affect the CAM charges, increasing the landlord’s ROI. A common area maintenance reconciliation is essential for both the landlord and the tenant to ensure accuracy.

Different CAM Payment Options in Commercial Lease

Commercial leases or property contracts need to clearly state what costs must be paid by the landlord and what costs must be paid by the renters. Some jargons often make the agreement seem intimidating and confusing. However, they are very easy to comprehend. The contract contains the frequency at which the CAM expenses are paid and how they are divided.

• Gross Lease: This kind of lease is also known as a full-service lease. In this kind of agreement, the renter pays every cost like CAM costs, taxes along with several operating costs all at once on a monthly basis. Here the landlord does not contribute to the CAM costs
• Modified Lease: In this type of commercial lease, the common area expenses are divided in varying proportions between the leaseholder and landlord. The renter may or may not pay more than the landlord, depending on the policy of the owner
• Net Lease: The lease states that the occupant must pay a decided share of operating expenses in addition to the monthly rent that was determined
• Triple Net Lease (sometimes called net-net-net or NNN): Also called the net-net-net (NNN) lease, the lessee is obliged to cover the taxes, insurance charges, operation costs. On the other hand, the landlord pays off the rest of the costs such as parking

Many of these are easy options that can be missed out, and a CAM Audit Service can help you deal with these issues.

What is Included in CAM Expenses?

CAM expenses accounting calculates different expenses depending upon the facilities and established norms of shared services. CAM Charges Calculation is a complicated process, and there are many aspects to consider. However, some may include:-

• Electricity: Often the spaces are sub-metered to calculate the electricity utilization of the lessee. The landlord and the renter pay different power bills. Sometimes a renter pays a fixed amount irrespective of the electricity utilization.
• Parking Lot: This includes the lighting cost of the parking and sometimes the maintenance cost.
• Landscaping Costs: These are the expenses incurred during remodeling.
• Water Costs: The cost of water does not only include personal utilization, but also the water used in irrigation and cleaning.
• Security: The salary of the security guard and the cost of maintaining the security system and CCTV.
• Salary of Support Staff: The salary of the sanitation workers might be included in this area.

A prospective renter must never sign a rent agreement or lease if the CAM expenses are not elaborated on in detail. Going through each and every sentence twice and proceeding only when there is mutual satisfaction is important. CAM real estate is manageable with the right considerations, and while the process can get complicated it is important to keep it in mind.

To Wrap Up

Understanding the fundamental question of “What is CAM in Real Estate?” is extremely important. As real estate is a fluctuating industry, CAM in accounting becomes integral for the correct assessment of the CAM charges within a premise. The audit equally benefits both tenants and the landlord, helping them better comprehend and compute the costs. Therefore, a CAM audit is beneficial to simplify and speed up the process, facilitating a seamless experience for both parties.

About

OHI is a fifteen-year-old real estate services company working with 50+ commercial and residential real estate developers, funds and property management companies across USA. Our deep expertise in real estate accounting, financial analysis, lease administration and asset management has helped clients cut associated costs by 40-50%. We currently provide these services to a portfolio of 50000 units across clients.

We invite you to experience leasing and accounting outsourcing through us.