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CAM Expense Calculations
Common Area Maintenance (CAM) expenses are operating expenses associated with common areas of a building. These common areas are spaces used for or benefited by all tenants, for example, hallways, elevators, parking lots, lobbies, public washrooms, and building security. CAM expenses can be divided into two categories:
- Internal
- External
Internal areas include hallways, lobbies, elevators, public washrooms, etc.
External areas include parking lots, landscaped areas, etc.
A tenant typically negotiates which CAM expenses are to be included in a lease:
- Single Net lease: The tenant pays a pro-rata share of property taxes only.
- Double Net lease: The tenant pays a pro-rata share of property taxes and insurance.
- Triple Net lease: The tenant pays a pro-rata of property taxes, insurance, and maintenance costs.
Within the same building, any number the tenants can have different leases negotiated. It can also happen that some tenants pay certain CAM expenses, while other tenants are excluded from the other CAM expenses.
For CAM expenses that have the same characteristics, landlords will typically create an expense pool.
Landlords create CAM expense pools that are CAM expenses that have the same characteristics. For example, a landlord might create the following expense pools:
- Uncontrollable charges, such as utilities or snow removal
- Controllable charges, such as janitorial or landscaping fees
In Property Lease Management, a CAM expense pool is attached to a 1-, 2- or 3-level property. When the lowest level of that property is added to a lease, any charges associated with the property’s attached expense pools are automatically added to the lease. Once added to the lease, accounts and charges can be added, edited, or deleted, where the changes affect the specific lease only.
Calculations
At the beginning of a year, the property manager forecasts the anticipated CAM expenses for a property as a whole. The annual forecast CAM expense is then divided proportionately among all tenants and is paid in small increments throughout the year. The payment is called a CAM charge and is assigned to an expense pool.
At the end of the year, the property manager reconciles the “actual” CAM expenses (all the charges posted on a CAM charge’s associated General Ledger account during the reconciliation time frame) with the “forecast” CAM expense (posted and unposted charges that appear on the lease’s CAM charge billing lines). A combination of system- and user-defined parameters are taken into account to determine the Actual expense, or how much of the actual CAM expenses posted on the associated General Ledger account the individual charge is responsible for.
This Actual expense is subtracted from the forecast CAM expense, or “Billed amount”. This calculated amount is the CAM recoverable, which is automatically added as a billing line to the CAM recoverable charge associated with the CAM charge. If the CAM recoverable amount is positive, all affected tenants may be required to pay an additional charge to make up the difference. If the amount is negative, all affected tenants will have a credit amount.
The CAM expense are calculated according to the base year or the current year.
Base Year
The base year method for calculating the CAM expenses helps the tenant budget for future expenses. Expenses that might be charged using this method include property management fees.
The base year for a tenant is established as the first year of the lease. If the tenant lease spans several years, the base year can be changed to any other year but no charges are incurred on the base year. Typically, the tenant pays CAM expenses in excess of the CAM expenses incurred in the base year.
Current Year
With the current year method, the tenant pays the CAM expenses as they occur each year. Expenses that might be charged using this method include property taxes.
For example, the actual CAM expenses in 2018 was a total of 71,000.00, and actual CAM expenses in 2019 was 74,000.00. For leases that started in 2018, 2018 serves as the base year.
For the base year method, CAM expenses allocated to tenants is:
- 0.00 in 2018
- 3,000.00 in 2019 (74,000 - 71,000)
For the current year method, CAM expenses allocated to tenants is:
- 71,000.00 in 2018
- 74,000.00 in 2019
Pro-Rata Share Method
Pro-rata share method divides the CAM expenses proportionately among all affected tenants. The pro-rata share method is specified on a lease agreement.
When calculating the pro-rata share method, some tenants might be excluded from the CAM expenses. Also, some tenants might be charged a CAM recovery amount, but have a certain area exempt from the charge.
A pro-rata share method can be calculated using one of the following methods:
- Fixed percentage: The pro-rata share method is calculated as a percent of the actual expense amount.
- Property area: The pro-rata share method is calculated by multiplying the actual expense amount with the leaseable area of a unit divided by the leaseable area of the building: Actual CAM expense * (leaseable area of a unit / leaseable area of the building).
- Tenants area: The pro-rata share method is calculated by multiplying the actual expense amount with the area amount of the unit that participated in the expense recovery divided by the total area of all units that participated in the recovery: Actual CAM expense * (chargeable area of a unit / chargeable area of all units in the building).
The lowest level is excluded from the tenants area calculation when Exclude from CAM calculation is selected on the Lease Details .
For example, a building has an area of 10,000 sq. ft. It has 10 units that are 1,000 sq. ft each. The following units participate in the CAM recovery with some exemption:
- Unit A: 300 sq. ft is exempt from the recovery.
- Unit B: 200 sq. ft is exempt from the recovery.
Also, three units are excluded from the CAM recovery. The pro-rata share method for Unit A is calculated as follows:
- Fixed percentage: 10,000 / 7,000 = 7%.
- Property area: 1,000 / 10,000 = 10%
- Tenants area: (1,000 - 300) / (10,000 - 3,000 - 300 - 200) = 11%
Reconciliation
CAM reconciliation is the process of comparing the actual CAM expenses with the estimated (or projected) CAM expenses to determine the CAM recovery amount to be charged to the tenants or be a credit for the tenants. The reconciliation is performed for the reconciliation year, which is the fiscal or lease year, and is specified on the lease agreement.
For example, on April 2016 a tenant moves in to a unit.
- Fiscal (Jan-Dec) Year:
- Lease Year:
If the Base Year calculation method is used, 2016 is the base year. The tenant will start paying CAM expense page January 01, 2017. The first CAM reconciliation will be performed on December 31, 2017.
If the Current Year calculation method is used, the tenant will pay the first CAM expenses from April 01 to December 31, 2016. The first CAM reconciliation will be performed on December 31, 2016. The tenant will then pay CAM expenses every year.
If the Base Year calculation method is used, 2016 is the base year. The tenant will start paying CAM expense page April 01, 2017. The first CAM reconciliation will be performed on December 31, 2018.
If the Current Year calculation method is used, the tenant will pay the first CAM expenses from April 01, 2016 to March 31, 2017. The first CAM reconciliation will be performed on March 31, 2017.
Partial Year Reconciliation
When a tenant moves in or out in the middle of a fiscal year or in the middle of a lease year, the following options can be used for reconciling a partial year :
- Average reconciliation: This type of partial reconciliation uses the daily average for the reconciled period to calculate the CAM expenses.
- Actual reconciliation: This type of partial reconciliation uses the actual periods to calculate the CAM expenses.
For example, the following table shows the CAM expenses for a year January to December. All months are 100.00, except July, October, and December, which are 120.00.
| Month | Expense Amount | Month | Expense Amount |
| January | 100.00 | July | 120.00 |
| February | 100.00 | August | 100.00 |
| March | 100.00 | September | 100.00 |
| April | 100.00 | October | 120.00 |
| May | 100.00 | November | 100.00 |
| June | 100.00 | December | 120.00 |
For a lease starting on November 01, the CAM expenses for each partial year reconciliation method are as follows:
- Average reconciliation: (100 x 9 + 120 x 3) x 61 days / 365 days = 210.58
- Actual reconciliation: 100 + 120 = 220.00
Capping
When a cap is applied to CAM expenses, the tenant is charged a percentage of the total CAM expenses up to a specified calculated cap amount. Cap amounts are used with the Base Year calculation method. Leases will have different cap amounts because they are defined for each lease and can be negotiated with the tenant. Cap amounts can be calculated using one of the following methods:
- Cumulative: The cap amount is calculated cumulatively starting from the base year and considering all previous years.
- Non-cumulative: The cap amount is calculated based on the current year and is reset every year.
For example, CAM expenses for 2016 (base year) is 71,000.00. Review the following tables for the cumulative and non-cumulative cap calculations.
| Cumulative Cap Calculations | |
| Annual Non-Cumulative Cap: | 5% |
| 2017 Amount for Cap Calculation: | 71,000.00 |
| 2017 Annual Cap Amount: | 74,550.00 (71,000 x 5%) |
| 2017 CAM Expenses Actual: | 73,000.00 |
| 2017 Amount Due Based on Cap: | 2,000.00 (the lessor of cap and actual, 73,000 – 71,000) |
| 2018 Amount for Cap Calculation: | 74,550 .00 (2017 capped amount) |
| 2018 Annual Cap Amount: | 78,278.00 (74,550 x 5%) |
| 2018 CAM Expenses Actual: | 75,000.00 |
| 2018 Amount Due Based on Cap: | 4,000 (the lessor of cap and actual, 75,000 – 71,000) |
| 2019 Amount for Cap Calculation: | 78,278.00 (2018 capped amount) |
| 2019 Annual Cap Amount: | 82,191.00 (78,278 x 5%) |
| 2019 CAM Expenses Actual: | 81,000.00 |
| 2019 Amount Due Based on Cap: | 10,000.00 (the lessor of cap and actual, 81,000 – 71,000) |
| 2020 Amount for Cap Calculation: | 82,191.00 (2019 capped amount) |
| Cumulative Cap Calculations | |
| Annual Non-Cumulative Cap: | 3% |
| 2017 Amount for Cap Calculation: | 71,000.00 |
| 2017 Annual Cap Amount: | 73,130.00 (71,000 * 3%) |
| 2017 CAM Expenses Actual: | 75,000.00 |
| 2017 Amount Due Based on Cap: | 2,130.00 (the lessor of Cap and Actual, 73,130 – 71,000) |
| 2018 Amount for Cap Calculation: | 73,130.00 (the lessor of Cap and Actual for 2017) |
| 2018 Annual Cap Amount: | 75,324.00 (73,130 + 3% = 75,324) |
| 2018 CAM Expenses Actual: | 75,000.00 |
| 2018 Amount Due Based on Cap: | 4,000.00 (the lessor of Cap and Actual) 75,000 – 71,000 |
| 2019 Amount for Cap Calculation: | 75,000.00 (the lessor of Cap and Actual for 2018) |
Markups
CAM expenses can be marked up to include administration charges for managing the expenses. Markups can be negotiated with a tenant and vary from lease to lease. Consider the following example:
| Amount | |
| 2016 CAM expenses (actual): | 40,000.00 |
| Tenant markup: | 2% |
| 2016 CAM expenses to reconcile: | 40, 800.00 |
Gross Ups
To gross up an expense means to bring the expense amount to a certain occupancy level. A gross up is a percentage defined for each lease and each expense. Grossing up an expense is optional. For CAM expense, the gross up is used to calculate the CAM expense amount as if the building is occupied at the Gross Up percentage rate. Consider the following example.
| Amount | |
| 2016 CAM expenses (actual): | 40,000.00 |
| 2016 Occupancy rate: | 55% (actual) |
| Tenant gross up: | 95% (defined on the lease) |
| Grossed-up CAM expense | 69,090.00 (calculated as follows (40,000 x 100% / 55%) x 95%) |
When the gross up is used with the Base Year calculation method, all years are grossed up, the current year and the base year. Consider the following example.
| Amount | |
| 2016 CAM expenses (actual): | 40,000.00 |
| 2016 Occupancy rate: | 55% |
| Tenant gross up: | 95% |
| Annual non-cumulative cap | 5% |
| 2017 CAM expenses (actual): | 55,000.00 |
| 2017 Occupancy rate: | 70% |
| Base year grossed-up expense (actual) | 5,553.00 (74,642 - 69,090) |
| Annual cap amount: | 2,130.00 (69,090 x 5%, cap after gross up) |
| 2017 CAM amount | 2,130.00 (the lessor of cap and actual) |
