Calculating common area maintenance (CAM) reconciliation and triple-net (NNN) lease charges are complex, time-consuming tasks. You must thoroughly review your data and double-check your math to avoid frustrating, costly mistakes.
However, with the right preparation, you can turn these tasks into efficient processes that help secure success for your business. Read on for everything you need to know about good CAM reconciliation and NNN lease practices.
Common area maintenance charges are the fees each tenant pays to help cover the cost of upkeep on shared property spaces. While each property will have different common area maintenance needs, typical examples in commercial buildings include:
A triple-net (NNN) lease is a common lease type in commercial real estate. NNN leases often offer a lower base rent, but a tenant is also responsible for three other payments, or “nets:” common area maintenance, insurance, and property taxes. The exact setup of an NNN lease can vary widely between tenants, as they often negotiate on specific terms.
Usually, NNN leases are set up so that tenants pay an estimated amount each month to cover CAM costs. But, because these costs can fluctuate widely due to unexpected maintenance needs and market factors, the estimated payments must be regularly reconciled so that neither the tenant or the landlord overpays. Usually, owners must perform CAM reconciliation at the end of each year to let tenants know if they owe additional money, or if the owner owes them.
CAM reconciliation is a complex process, but you can make it much simpler and less stressful by implementing a few basic best practices:
Reconciliation becomes much easier when you set a good monthly CAM charge rate. Deciding on this rate means reviewing your spending for the property in past years to estimate how much you can expect in maintenance costs this year. Since many costs, like specific maintenance professionals and regular procedures, remain similar, past records are an excellent starting point for your CAM charge estimate.
After reviewing your past spending, look ahead to what you want and need to spend on this year. It may be time for larger maintenance projects such as repaving a parking lot. You may want to renovate shared areas of the property to raise its value. These are important costs to include in your budget.
Additionally, make sure to take into account market forces such as inflation that increase costs year to year.
Both when setting CAM charge rates and when reconciling, it’s crucial to check the lease terms for each tenant on the property. NNN Leases may include special circumstances or agreements about a specific tenant’s CAM fee responsibility, such as exceptions from certain costs or caps on the total amount they can be required to pay. Since these terms may differ from tenant to tenant, make a point of double-checking every lease to avoid mistakes in reconciliation.
At the end of each year, you must compare what tenants have paid in monthly CAM fees to the actual CAM expenses of the year. Often, unexpected costs mean that tenants will owe an additional amount. On the other hand, actual costs can be lower than expected, meaning that tenants have overpaid throughout the year and you as the owner must now reimburse them.
Either way, it’s important to reconcile efficiently. Usually, owners must do so and communicate the result with tenants within 90-120 days. It’s also key to provide a clear and thorough breakdown of your calculation to tenants, verifying your results and preventing disputes.
If your business uses QuickBooks for accounting, you may be wondering if it can help you perform CAM reconciliation. QuickBooks is an excellent place for logging transactions and keeping track of your finances, so it is an important place to start when budgeting and estimating CAM charges for the year, and you may want to review these details during reconciliation, too.
However, QuickBooks is not primarily designed for commercial real estate, so it isn’t the best option for reconciliation itself. Using QuickBooks to reconcile means you must perform the entire process by hand, making calculations and checking lease terms, which QuickBooks does not store. When it comes to the reconciliation process each year, you may need additional tools for best results.
An excellent solution for CAM reconciliation and NNN lease tracking needs is commercial property management software. Designed specifically for commercial real estate, property management software is a single program that helps you perform a wide variety of the tasks necessary to running a business. Particularly helpful features include 1-click automated CAM reconciliation, making the yearly process fast and accurate, and a dedicated place to store lease information for all your tenants. Property management platforms like STRATAFOLIO even integrate with QuickBooks Desktop and Online, allowing you to keep easy access to your accounting software with automatic data syncing between the two programs.