Do you or your firm lease space in a building? If you answered ‘yes’, then your lease charges probably consist of paying Base Rent and Common Area Maintenance charges. Most people know what ‘Base Rent’ is, but what are Common Area Maintenance (“CAM”) charges? CAM charges are operating expenses incurred by landlords for the operation and maintenance of a building. These expenses are charged back to tenants based on a tenants pro rata share of a building (i.e., if a tenant leases 5,000 s.f. of space in a building consisting of 150,000 s.f., tenant’s pro rata share would be 3.33%). Tenants beware; landlords have increasingly expanded the list of these expenses to include items that should not be passed through to tenants. Tenants should only be paying for their pro rata share of legitimate expenses relating to the operation and maintenance of the building common areas.
Each year, landlords prepare and deliver to each tenant a CAM reconciliation, varying according to the terms of each tenant’s lease and payments received by landlord, consisting of a comparative list of the building common area expenses vs. the actual CAM dollars a tenant has paid throughout the year. It is imperative that tenants confirm the payments received by landlord are consistent with their internal records and review the expenses to verify that no illegitimate expenses were ‘slipped’ in &/or no capital improvements or tax compliance expenses were inadvertently included.
Each year, landlords prepare and deliver to each tenant a CAM reconciliation, varying according to the terms of each tenant’s lease and payments received by landlord, consisting of a comparative list of the building common area expenses vs. the actual CAM dollars a tenant has paid throughout the year. It is imperative that tenants confirm the payments received by landlord are consistent with their internal records and review the expenses to verify that no illegitimate expenses were ‘slipped’ in &/or no capital improvements or tax compliance expenses were inadvertently included.
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THE IMPORTANCE OF LEASE REVIEW AND AUDITTING COMMON AREA MAINTENANCE EXPENSES (CAMs)
Most tenants do not have the knowledge nor the time to efficiently review a lease or a CAM reconciliation. That is why finding the right tenant representation broker who offers a single source of accountability to aggressively negotiate your lease terms while maximizing your profitability and reducing your operating costs to create flexibility is crucial. A thorough review of your lease before and during your lease term is worth its time in gold. A few suggestions are: (i) review the history of the building’s CAM charges prior to occupancy; (ii) confirm the base year stated in your lease (make sure no obligation to pay for expenses during the base year and variable expenses are subject to a “gross up” to reflect the full amount of operating expenses as if the building had been 100% occupied); and (iii) insert a ‘cap’ on operating expenses in your lease.
Your tenant representation broker should not have any commitments or conflicts of interest with landlords or property owners. They should only be focused on completing a transaction that meets your business and financial goals, without concern for how it will affect listings in the marketplace or relationships with landlords. They should: (i) negotiate your existing &/or new office locations, (ii) review annual CAM reconciliations vs. lease terms; (iii) prepare lease abstracts; (iv) provide notification of critical Lease dates; and (v) establish a direct liaison relationship with building ownership or property management team.
No longer should you spend time on your internal real estate needs; instead you should focus on the growth and success of your business!
Your tenant representation broker should not have any commitments or conflicts of interest with landlords or property owners. They should only be focused on completing a transaction that meets your business and financial goals, without concern for how it will affect listings in the marketplace or relationships with landlords. They should: (i) negotiate your existing &/or new office locations, (ii) review annual CAM reconciliations vs. lease terms; (iii) prepare lease abstracts; (iv) provide notification of critical Lease dates; and (v) establish a direct liaison relationship with building ownership or property management team.
No longer should you spend time on your internal real estate needs; instead you should focus on the growth and success of your business!
Julie Dunlap
eRealty Commercial, Inc. ~ pioneers in tenant representation, exclusively representing tenants
12780 High Bluff Drive, Suite 160
San Diego, CA 92130
858.229.5597 (ph)
858.350.5585 (fax)
www.erealtycompanies.com
eRealty Commercial, Inc. ~ pioneers in tenant representation, exclusively representing tenants
12780 High Bluff Drive, Suite 160
San Diego, CA 92130
858.229.5597 (ph)
858.350.5585 (fax)
www.erealtycompanies.com
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