Read time 2 minCommercial lease tenants are required to pay common Area Maintenance (CAM) charges are towards the maintenance of usable common areas within the property. It is typically calculated as the tenant’s pro-rata share of the operating expense. While CAM expenses are important for the upkeep of the property which is mutually beneficial for both tenant and landlord, lack of standard practices and broad definitions of CAM expenses have made CAM costs a major point of contention.
This is why over the years to ensure accountability and transparency many commercial leases now grant express audit rights to the tenants. This allows you to assess the landlord’s books and audit the items included as CAM charges and verify the accuracy of the calculation.
While CAM audit is an imperative process that can help uncover any discrepancies, wrongful practices, or miscalculations, it is an increasingly challenging and complex task. Let’s look at what makes the process a tedious one and how you can overcome these hurdles.
Not choosing the right service provider
Considering the complexities of accounting practices and commercial leases, CAM audit can be quite tedious and challenging. Not having the right partner to conduct the audit can derail the entire effort. The review process requires gathering a variety of documentation from the landlord and assessing various parameters to be able to identify gaps and prepare a detailed audit report. In-depth knowledge of commercial lease structures, CAM expenses and calculation, and accounting practices is a must for conducting these audits efficiently. Plus, uncovering landlord errors and questioning their calculation requires that audits should be performed by professional and experienced firms to avoid any further conflicts and also errors in audits.
Lack of comprehensive coverage
CAM audit goes beyond simply checking the calculations, it entails conducting a comprehensive review of CAM charges. From comparing invoices with the lease terms to determining fair pricing to identifying any erroneous/hidden expenses to ensuring invoices are accurate and in line with lease terms. Skipping any of these steps would make the entire process ineffective. Lack of comprehensive coverage often leads to an inability to accurately uncover overcharges or identify billing discrepancies, making it difficult to identify present and future occupancy cost risks and alleviate them.
Not engaging professionals at the right time
In many cases, tenants fail to ask for detailed statements from the landlord on time and delay raising an issue in case of improper CAM charges. In such cases, in many states, tenants may not only lose the right to appeal but also not have any option to challenge the landlord due to state-specific statute of limitations governing these disputes. This often leads to unresolved issues but also tenants being obligated to pay the inflated operating expenses. It is therefore imperative to engage audit professionals early in the process. Partnering with a specialized service provider can help contain occupancy costs through the identification of recovery opportunities, billing inaccuracies, and discrepancies with the lease terms and unauthorized charges.
