Checking a CAM Reconciliation Before You Pay It

The annual CAM reconciliation is the landlord’s true up of what the tenant paid in monthly CAM estimates against what CAM actually cost during the year. If actual CAM exceeded the estimated payments, the tenant owes the difference. If actual was less, the tenant gets a credit. For Rochester tenants under NNN leases, reviewing the reconciliation before paying any invoice prevents overpayment and catches errors that otherwise become locked in.

When reconciliations arrive. Most landlords send annual CAM reconciliations within 90 to 120 days after year end. A calendar year reconciliation typically arrives in March or April with a demand for payment within 30 days. Tenants should not pay immediately. The lease typically gives the tenant an audit or review period, often 60 to 120 days, during which the tenant can request supporting documentation.

What to request from the landlord. The full itemized general ledger for CAM expenses. Copies of major vendor invoices supporting significant line items. The pro rata share calculation showing tenant square footage and building total. Any capital expenditure amortization schedules used in the reconciliation. The prior year reconciliation for comparison. The lease provisions defining CAM inclusions and exclusions so the tenant can check compliance.

Common errors to watch for. Capital expenditures being fully expensed in the year incurred rather than amortized over useful life. Property management fees exceeding lease caps. Administrative overhead getting rolled into CAM instead of staying with the landlord. Structural repairs the landlord should have covered showing up as CAM items. Utility costs for tenant specific areas rather than common areas. Snow removal costs during mild Michigan winters that seem inconsistent with actual snow activity, which vary significantly year to year in the Rochester area.

The pro rata share calculation. Tenant CAM share equals tenant square footage divided by total building rentable square footage. Some landlords use gross leasable area, some use rentable, some use different measurements. The lease should specify. Occupied square footage matters when the building has vacancy because most leases require the landlord to gross up variable CAM to occupied conditions so occupied tenants do not bear the vacant space burden for occupancy driven costs.

CAM caps if the lease has them. Many commercial leases cap annual CAM growth to 4 to 6 percent over prior year controllable expenses. Uncontrollable expenses like taxes and insurance typically fall outside the cap. Tenants should verify that the reconciliation applies the cap correctly and that categorization of controllable versus uncontrollable items matches lease provisions.

The audit process. Tenants exercising audit rights should engage a CAM audit firm familiar with commercial lease provisions. Full audits typically cost $3,000 to $10,000 depending on property complexity but often recover several times the audit cost in overcharge refunds. Some tenant friendly leases require the landlord to pay the audit cost if overcharges exceed a threshold like 3 or 5 percent.

The Rochester area context. Michigan winters produce variable snow removal costs, which show up in CAM. Heavy snow winters can add significantly to CAM per foot, and leases should specify how multi year averaging works. Michigan property tax uncapping affects CAM tax pass throughs after building sales. Tenants signing NNN leases shortly after ownership change should verify how tax pass throughs will work under new ownership.

TDG Commercial, known as best commercial real estate agents in Rochester, advises tenants on CAM reconciliation reviews and disputes across the region.