Auditing a CAM Reconciliation Statement: What to Ask For, What to Check, and What Usually Turns Up

A CAM reconciliation statement is a landlord's calculation of what a tenant owes, and most commercial leases give the tenant the right to check it. Auditing a common area maintenance reconciliation statement is that check, done properly. The check is called an audit, it has a window, and for a large tenant it is routine: a lease administrator or an outside firm requests the supporting documents, redoes the arithmetic, and either signs off or writes back with a list. This piece is that list, from both sides of it — what a tenant should ask for and verify, and what a landlord should have ready.

The method being audited is the one in the complete guide to CAM reconciliation.

The audit clause

The right to audit lives in the lease, and its terms vary. The usual shape:

• A window — the tenant must request the audit within a stated period after receiving the statement, commonly 60, 90 or 180 days. Outside it the statement is deemed accepted. The window is the single most important date on the tenant's calendar in reconciliation season.
• Who may audit — the tenant's own staff, or an independent accountant; many leases exclude auditors paid on contingency, because a percentage of the recovery is an incentive to find one.
• Who pays — the tenant, unless the audit finds an overcharge above a threshold, typically 3% to 5% of the year's charges, in which case the landlord pays for the audit as well as refunding the difference.
• Confidentiality — the results are not to be shared with other tenants.

A tenant without an audit clause still has the ordinary right to ask for an explanation of a charge; what the clause adds is the obligation to produce the documents.

What to request

The audit is only as good as the documents behind it. The request should name:

1. The general ledger detail for the year, by category — every invoice that went into the pool, with date, vendor, description and amount.
2. The classification — which category each line was placed in, which pool each category sits in, and which lines were treated as non-recoverable and why.
3. The denominator — the building's leasable area used for the pro-rata shares, and the leased area month by month if any lease has a gross-up clause.
4. The gross-up calculation, if applied — the actual occupancy, the standard, the multiplier, and which pools it was applied to.
5. The base-year statement, if the lease has one — the reference year's pool figures, on the same footing as the current year.
6. The cap calculation, if the lease has one — the prior year's controllable costs, the ceiling, the kind of cap applied.
7. The administrative fee — its rate and its base, and what the base excludes.
8. The estimates billed to this tenant during the year, by month.

A landlord who runs the reconciliation in software that keeps the ledger frozen behind each year's statement produces this in one export. One who ran it in a workbook has to reconstruct it, and the reconstruction is where the second set of errors comes from.

The eight checks that find most errors

In rough order of how often each turns something up:

1. Non-recoverable costs in the pool. Capital items — a roof, a parking-lot repaving, a chiller — and leasing costs. Look for round, large, one-off invoices and ask what they were.
2. The administrative fee inside the pool, or on the wrong base. A fee shared as if it were a cost; a fee calculated on a base that includes taxes and insurance when the lease excludes them; a fee on a base that already contains the management fee. The two fees, taken apart.
3. Gross-up applied to fixed costs. Taxes, insurance or fixed service contracts restated to 95% occupancy. Gross-up, explained.
4. The wrong kind of cap. A cumulative cap applied as non-cumulative, or a compounding one applied as simple — on a $48,000 base at 5% the three give year-three ceilings of $50,400, $55,200 and $55,566. Recompute from the lease's own formula, not from the label on the statement.
5. The denominator. A share calculated on the leased area when the lease says the building's area — which pushes vacancy onto the tenants — or a building area that changed without the shares changing.
6. A base year not on the same footing. A grossed-up current year compared with an un-grossed base year manufactures an increase; a base year with a cost in it that the current year excludes does the same.
7. The same cost twice. An invoice in two categories, a management fee both in the pool and inside the administrative fee's base, a cost billed directly to one tenant and also shared.
8. The proration. A tenant who arrived mid-year charged a full year, or a fraction that does not match the lease dates.

Most audits find something in the first three. The check every auditor runs before any of them is the reconciliation's own: the tenants' shares plus what the landlord absorbed should equal the pool. A landlord who cannot show that equation closing has a statement that cannot be defended, whatever the individual lines say.

What a landlord should have ready

The audit is cheapest for the landlord who prepared for it in March rather than in September. The preparation is the statement itself:

• Every line traced. The share, the pool it came from, the denominator, each adjustment with its figure. A statement that shows gross-up adjustment: $35,700 invites the audit; one that shows variable pool $100,000 × 1.357 (95% ÷ 70% average occupancy) settles it.
• The pack behind each pool. The invoices, by category, with date, vendor and reference — the document the tenant's auditor will ask for first.
• The ledger frozen behind the statement. The year's expenses as they stood when the statement was calculated, so a re-run twelve months later reproduces the same figures. A reconciliation that cannot be reproduced cannot be audited; it can only be argued about.
• The versions kept. If a statement was corrected, the original still exists, and the tenant is told which version their invoice was based on.

Timing, and tone

Requests arrive in the months after the statement, and the lease's window governs. A landlord who answers a request with the pack within a week usually closes the audit within a month; one who answers with a phone call usually does not. On the tenant's side, a written request naming the documents by the list above is worth more than a general demand for "backup" — it is harder to answer partially.

Where the audit finds an error, the remedy is a corrected statement issued as a new version, a refund or a credit against the next estimates, and — above the lease's threshold — the cost of the audit itself. Where it finds none, the tenant has paid for the confirmation, which on a large lease is still cheap.

In short

Ask for the ledger, the classification, the denominator, the gross-up, the base year, the cap, the fee and the estimates. Check the pool for capital, the fee for its base, the gross-up for fixed costs, the cap for its kind, the denominator for the building's area, the base year for its footing, the whole for duplicates, the proration for the dates. And before all of that, ask whether the tenants' shares plus the landlord's absorbed amount equal the pool.

ChargeRecoveries produces the pack as a matter of course: every statement carries its supporting detail by pool, the ledger behind a frozen year cannot change, versions are kept, and the check has to close before a year can be sent — so the audit finds what the landlord already showed.

Frequently asked questions

How long does a tenant have to audit a CAM statement? Whatever the lease says — commonly 60 to 180 days from receipt. After the window the statement is usually deemed accepted.

Who pays for a CAM audit? The tenant, unless the audit finds an overcharge above the lease's threshold, typically 3% to 5%, in which case the landlord bears the cost and refunds the difference.

What documents can a tenant request? The general ledger detail, the classification into pools, the denominator, the gross-up and cap calculations, the base-year figures, the administrative fee's base and the estimates billed.

What is the most common CAM audit finding? Non-recoverable costs in the pool — capital items and leasing costs — followed by the administrative fee on the wrong base and gross-up applied to fixed costs.