Common area maintenance (CAM) charges are part of most commercial leases these days. The landlord and/or the property manager create a budget for the property before the start of each new year.  The tenant is then charged their pro rata share of the annual operating budget each month.  After the year is over, the manager reconciles the budget with the actual expenses.  If there is a shortfall, the manager bills the tenant based on its pro rata share of that shortfall.  Conversely, if there is a credit, it means that the tenant was overcharged and as a result, the manager credits the tenant.

Sometimes, however, a simple lack of oversight or negligence by the property manager regarding CAM charges can result in large problems between an owner and tenant.  A good example of this is a retail property in Omaha, Nebraska we took over a few months ago.   As part of our transition process from the previous manager, we visited all of the tenants to discuss pending issues, complaints or any suggestions pertaining to their enjoyment of the property.  One tenant told us that he had received an abnormally high CAM reconciliation charge, and had been trying for some time to get answers from the previous manager.  After immediately researching the files, we noticed that the previous property manager had been billing this tenant based on an old budget.  In other words, the previous property manager simply neglected to make a minor change in their software, and was therefore under-billing the tenant.  After further research, we discovered that this was true of all tenants at this property.  This was a careless error that led to problems for both the tenant and the Landlord.

While the owner of the property understood that this was an error by the previous property manager, unfortunately the tenant still owed the money.  The problem for the tenant was that he had not been able to properly budget for the abnormally large CAM reconciliation charge, and therefore could not afford to pay it all at once.  We helped facilitate a payment plan that was satisfactory for both owner and tenant to try to navigate the situation. 

Unfortunately for our owner, he had to wait several more months to collect CAM charges that should have been already paid.  He also faced the risk that that if the tenants ran into hardship, and were unable to pay their rent, current CAM and reconciliation charges, he could potentially never collect these funds that should have been already collected.

Obviously businesses today are forced to deal with many financial uncertainties and hardships, but this is certainly one that could have been easily avoided.  Landlords and tenants rely heavily upon their property managers taking great care and properly managing the accounting of a property.  Here at Terrahawk Group, we take this trust very seriously.  When the property manager fails to do so, it is bad for the tenant and the landlord.