Common area maintenance (CAM) reconciliation is one of the most important aspects of running a commercial real estate business. It might feel like more of a chore than expanding your portfolio or attracting new tenants, but accurate, efficient common area maintenance can be the difference between a struggling commercial real estate business and a successful one. Below, we’ll review what common area maintenance is and list some of the key tips for smooth, effective reconciliation.

What is CAM Reconciliation?

CAM reconciliation is a yearly process for commercial real estate owners whose tenants use triple-net (NNN) leases. In an NNN lease, tenants pay base rent, but also pay a monthly fee to help cover maintenance for shared areas of the building like parking lots, lobbies, and elevators. It may also help cover building improvements or renovations.

Because this fee is set out at the beginning of the year, actual expenses may differ. At the end of the year, CAM reconciliation is the process of calculating the difference between expected and actual maintenance costs. Sometimes, this results in tenants having to pay an additional amount, while other times owners owe money back to their tenants.

Why is Good CAM Reconciliation Important?

It is extremely important to perform CAM reconciliation quickly and accurately, and to clearly explain your calculations. If tenants feel they owe too much or are kept waiting too long, they may raise disputes, resulting in time-consuming, costly recalculations, mediations, or even audits. If the problem persists, tenants may decide to leave, impacting your profits and potentially your reputation as a responsible commercial real estate owner.

On the other hand, good practices around CAM reconciliation build trust with tenants, creating positive, lasting relationships. In addition, it does your future self a favor, making it easier to create smart, tailored budgets and CAM fees for next year.

Top Strategies for Effective CAM Reconciliation

Many factors go into successful CAM reconciliation. Below, we’ll dive deeper into a few of the most important strategies.

1. Create Careful Budgets

At the beginning of each year, creating your budget helps you determine what tenants will pay for monthly CAM fees. The more accurate your prediction, the less tenants (or you) will owe at the end of the year. To do this, review financial records from previous years to figure out big sources of spending, and compare this to your maintenance needs and property goals for the year ahead. In addition, it’s important to take into account economic factors like inflation or changing interest rates.

2. Keep Thorough Records

Throughout each year, carefully record your spending for common area maintenance tasks. Make sure to note exactly what each cost was for and if the expense is reimbursable, meaning it can be passed along to tenants, or not. These records will form the basis of the reconciliation process at the end of the year.

Don’t throw them away after reconciliation, though. Spending records from previous years can help you build a more accurate budget with carefully calculated CAM fees for upcoming years, reducing unexpected costs for yourself and your tenants.

3. Double-Check Calculations

Accuracy is key in reconciliation. Double-checking your math keeps your tenants (and you) from over or underpaying. Plus, a record of accuracy builds trust with your current tenants and can even help you gain a reputation for good customer service with potential new tenants and investors.

4. Be Aware of Exceptions

Some tenants negotiate lease terms that involve exceptions when it comes to CAM fees, and it’s crucial to be aware of these when reconciling to avoid overcharging. The most common of these include CAM caps, which put a limit on how much tenants can pay for common area maintenance fees per year. After this limit, the fees go back to the owner. Some tenants may also arrange specific exceptions to CAM fees for parts of the building they do not use.

Each lease will differ on CAM terms, and it can be difficult to keep track and accurately take each unique situation into account. Using programs that track and apply lease data automatically is one good strategy to reduce human error and build trust with tenants.

5. Communicate Clearly With Tenants

Be sure to start CAM reconciliations early to avoid rushing. In most places, landlords are required to finish reconciliations in 90-120 at the end of each year. Finishing this on time lessens stress and builds trust with tenants. When sending out reconciliations, be sure to include a detailed breakdown of your calculations, especially if tenants owe additional money. Being clear and specific helps tenants understand where their money is going and prevents disputes. For the same reason, be available to answer any questions and resolve confusion.

The Final Tip: Use Property Management Software

Trying to keep track of all the data, processes, and tenant communications necessary for effective CAM reconciliation can feel overwhelming. However, it doesn’t have to be difficult. Using property management software designed for commercial real estate needs can help you with all of the tips above. Take advantage of a single place to store lease information, analyze financial records, and even communicate with tenants. Some commercial property management software like STRATAFOLIO even automates CAM reconciliation, allowing you to turn a yearly nightmare into an easy 1-click process.

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 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.