Common Area Maintenance and the Importance of Getting it Right

If you are a commercial real estate owner, common area maintenance (CAM) is a crucial part of running a successful business with well-regarded properties. Setting a good budget, deciding on monthly CAM charges, and reconciling at the end of each year are complex tasks, and without the proper attention, they can cost you time, money, and even endanger your tenant relationships. Read on to get the full breakdown of how common area maintenance works, pitfalls to avoid, and the kinds of tools that can help.

What is Common Area Maintenance?

In commercial real estate, common area maintenance refers to the costs of upkeep on shared parts of a property. While this differs from property to property, it often includes things like:

• Parking lots
• Elevators
• Lobbies and hallways
• Professional services like cleaning, snow removal, or garbage removal

Usually, CAM fees are a pass-through expense, meaning that the landlord covers them initially but then passes the cost on to tenants via a monthly charge. However, there are exceptions: certain lease types, like gross leases, include CAM costs in a higher base rate. Additionally, tenants can negotiate CAM caps or special circumstances that limit how much they are responsible for paying.

What is Reconciliation?

Because it’s impossible to know exactly how much you will have to spend on a property’s common area maintenance over the year, owners make estimations. This estimation allows tenants to pay a set amount each month that hopefully adds up to about the actual spending needs of the property (not counting exceptions like CAM caps).

However, most of the time, tenants either end up paying a little less or a little more than that actual amount due to price fluctuations, market forces, and unexpected costs. At the end of the year, the owner must reconcile to figure out the difference and either invoice tenants for what is still needed or pay them back any extra.

Why is Good Reconciliation So Important in Commercial Real Estate?

CAM Mistakes and How to Avoid Them

With good systems in place, reconciliation becomes much more effective and much less stressful. Keep an eye out for these frequent CAM mistakes in order to improve your processes:

Poor Record-Keeping

In order to make accurate CAM charge estimates, you’ll want to review your spending from previous years. These records are a good place to start when figuring out how much expected needs, like regular cleaning, might cost. Without records, you’ll be guessing wildly about your spending. And if your records exist but are unclear (for example, if they only indicate total spending, but don’t mention major unexpected or unusual costs) you’ll still have a poor estimate.

Keep updated, clear, and easily-accessible records of your spending each year to help make planning easier for yourself in the future.

Lack of Budgeting

In addition to reviewing past records, it’s important to know your plans for the year ahead. Without a budget, it’s impossible to set accurate CAM charge rates. Instead, use your previous years as a starting point, then remember to account for things like rising interest rates and prices. Also include any bigger projects, such as renovations, you hope to accomplish that year.

Slow, Inaccurate Reconciliation Calculations

Reconciliation itself can be difficult. The calculations involve large amounts of data, especially if you have lots of different tenants with different lease terms. If you don’t have good systems set up, it is a slow, painful process that often results in manual errors. Not only does this cost you valuable time, it also erodes tenants’ trust in you if they are forced to wait for numbers they’re not sure are correct.

In most places, landlords have 90-120 days to complete reconciliation at the end of the year. In order to make sure you can reconcile accurately and on time, make sure your data is organized and take advantage of automation tools.

No Communication with Tenants

Even if you have excellent planning and accurate reconciliations, none of it matters if tenants don’t know about it. Not clearly explaining your calculations and the exact breakdown of fees is a recipe for confusion and disputes with tenants. Make sure to include a thorough explanation, especially if tenants owe additional money, and be available to answer questions if needed.

Best Tools to Make Common Area Maintenance Easy

Many of these common issues can be avoided when you take advantage of digital tools and automations designed to help you with CAM tasks. Commercial property management software is an excellent option, providing helpful tools like lease storage, financial reports, and tenant communication portals. Some software, like STRATAFOLIO , even automates reconciliation calculations, so you can reconcile in 1-click for fast, reliable results. When it comes to CAM, you want the best support and the fewest challenges. Look into commercial property management software to streamline your CAM processes.

 

About the Author:

Jeri Frank is the Co-founder and CEO of STRATAFOLIO, a leading software platform that integrates seamlessly with QuickBooks to simplify the complex world of commercial real estate management.

A recognized thought leader, Jeri contributes regularly to the Forbes Business Council, Insightful Accountant and has shared her expertise through IREM and CCIM podcasts and webinars. STRATAFOLIO has earned top industry recognition, including being named a top platform by CREtech, selected for the National Association of Realtors REACH program, and listed by Houlihan Lokey as a top property management system for several consecutive years. STRATAFOLIO consistently earns 5-star reviews from platform users for its unique ability to reduce manual activities by 80%. You can find links to many resources and guides on their website.