NRTA responds to retailers’ CAM headaches

By Paul Kinney, paul@retailtenants.org

Common Area Maintenance (CAM) charges are a headache for commercial tenants of all sizes. Unfortunately, overcharges make the management of CAM expenses a major problem for retail tenants. Responding to the CAM overcharge hot button, the National Retail Tenants Association (NRTA) has once again made CAM management a key topic of its education curriculum of its annual conference planned for this September in Orlando.

The NRTA will host a number of workshops to educate lease administrators and property managers on how to protect themselves when entering into lease agreements and other issues relevant to occupancy cost practices.  As a whole, the conference curriculum deals with real property issues and encourages the development of best practices between landlords and tenants.

What will your real estate and lease administration team learn at the NRTA sessions? Tips and advice include making sure the lease fits your needs, counting all costs, and reviewing the history of the building’s CAM charges for prior years. As well, presenters will warn attendees to assure that only legitimate CAM charges are included in the CAM provision, and items such as capital improvements and compliance with laws are excluded.

Best practices dictate that lease administrators not accept a provision that makes the landlord’s determination of CAM charges final.  The NRTA advises retailers to always reserve the right to audit the landlord’s expenses and to review the landlord’s calculations. Do not accept CAM expenses that are the landlord’s obligation under other provisions of the lease.
Some leases may have a provision that makes the landlord’s determination of CAM charges final.  Since the landlord is basically spending the tenant's money, the landlord should be held accountable to the tenant for those expenses.  At the time a lease is first written, it is so important for a tenant to reserve the right to audit the landlord’s expenses and to review the landlord’s calculations before paying these charges.

If a CAM charge is passed through to the tenants, then the tenant has the right to audit their records whether the audit right is stated or not, in the lease. NRTA members have helped to develop best practices to improve effectiveness and clarity for both tenants and their landlords, and the association certainly serves to improve working relationships between them.

One such best practice is an understanding that the landlord’s expense summary statement is not sufficient documentation to determine if a charge is legitimate or not.  A trained lease administrator will want to access the source records, and then compare the expense to the annual statement.  Access to these documents should not be an issue.

CAM records are typically accessible in a primary headquarters or a management location and easy for a semi-experienced person to audit.

NRTA course presentations empower tenants to verify and to challenge a landlord's expense billings, including Common Area Maintenance charges.  While CAM overcharges are not uncommon, lease reconciliations also are not unusual. Audits covering CAM reviews over periods of multiple years have the potential of uncovering very substantial overcharges. Therefore, it is not surprising to learn that many retailers are investing resources into their auditing capabilities in the form of additional staff, software improvements and use of outside audit specialists.

To learn more about CAM best practices and related issues, visit NRTA’s website retailtenants.org and review the 2011 curriculum agenda planned for its September Annual Conference.

Paul Kinney is executive director of the National Retail Tenants Association, based in East Longmeadow, Mass. He can be reached at paul@retailtenants.org.