Reconciling Cam Charges

[Feargus]

I am a Tenant.

What does "reconcile" mean in regards to CAM charges?  My landlord is attempting to recover losses in CAM expenses from the prior year and passing them onto the next lease year.

My attorney tells me there is no clause in the Master Lease that allows him recover the losses.

i would like to get a second opinion.

My Master Lease reads:

3.2  COMMON ARE MAINTENANCE.  Common Area Maintenance(hereinafter referred to as "CAM") charges will be charged by Landlord to Tenant in addition to Rental payments set forth herein.  The parties hereby agree that in Year One(1) of the Agreement, the CAM charges will be in the amount of Eight Hundred Seventy-Five Dollars($875.00) per month, due at the same time as the rental payments established herein.  Following Year One(1) of the Agreement, CAM charges will be reconciled after Lear year, at the request of Tenant, and the subsequent years CAM charges will be adjusted to reflect the actual total of the previous years' CAM divided in equal monthly installments.

After the first year, the Landlord severely underestimated the CAM charges and now wants to recover the losses by adding them into the next lease year.  Does 3.2 above give him that right?  No where else in the Master Lease are CAM costs discussed.

I am requesting for a breakdown of the CAM's from the Landlord to understand his breakdown in costs, but he refusing to show me information on the CAM breakdown.

Thank you for your help.

Erik

ANSWER: Erik-

This is a rather complicated process to understand so do your best to make sense of my response.

Paragraph 3.2 appears to generally describe the process by which landlords' assess CAM expenses to their tenants.  The problem is that on its own, the lease text you provided lacks many additional critical provisions that are required to define other specifics required to establish how to perform the annual CAM calculations.

Perhaps there is other text in the lease in this regard that you didn't include.

Your lease states that you must pay $875 each month during the first year(12 months) along with your payment of the basic monthly rent. You indicate that then your lease provides that: "Following Year One(1)of the Agreement, CAM charges will be reconciled after(the?) Lear(Lease?) year,..." etc.   This initial portion of the lease language is intended to explain that after the you pay the $875 per month for the first 12 months of your lease, the landlord will then go back and review his accounting records and calculate what the actual CAM costs finally totaled for those particular 12 months, and if YOUR PRO-RATA SHARE of the total CAM costs results in an amount that is more than $10,500($875/mth. x your 12 monthly payments), then the landlord will ask you to pay an additional CAM payment that covers the amount by which Your PRO-RATA SHARE of the ACTUAL CAM COSTS for those 12 months exceeds $10,500.  If your PRO-RATA SHARE of the ACTUAL CAM costs for those 12 months is LESS than $10,500; the landlord will refund you the amount that you overpaid your CAM costs for those 12 months.   That is what the lease means by: "...CAM charges will be "RECONCILED" after(the?) Lear(Lease?) year,..."   It is quite uncommon however that your lease does not include language that describes this added crediting or further assessment in the reconciliation process.  

Allow me to explain some things that are unsaid in the text of the lease.

The general idea is that the landlord wants you to pay him over the full term of your lease for the cost of your PRO-RATA SHARE(that is the portion of the total CAM costs for the overall retail center that are attributable to only your amount of retail space) of the CAM costs.   

Since the landlord doesn't want to have to pay for all the CAM costs for the retail center during your first year out of his own pocket, he estimates what he thinks the CAM total will probably be for your space for the first 12 months, and asks you to pay that amount in 12 monthly payments(in your case $875/mth.).   Then, after those first 12 months are over, the landlord totals up what the ACTUAL(not "Estimated") CAM costs were for the last 12 months, and "reconciles" what you have paid him over the 12 months in monthly CAM payments(In your case $10,500) with what he has calculated your actual CAM costs to be.  As I said in the earlier paragraph, the landlord then reconciles your total amount of CAM payments paid the the last 12 months with what the ACTUAL costs turned out to be, and either asks you to pay him more or, if applicable, refunds you the amount by which you overpaid the ACTUAL CAM costs.

In the following year, and each lease year after that, the same process is followed; the landlord indicates a reasonable estimated monthly CAM payment that you are to pay for the next 12 months, and then the landlord "reconciles" your ACTUAL SHARE of the CAM costs at the end of each lease year.

If the landlord discovers after the first 12 months of CAM payments of $875/month that your share of the ACTUAL CAM costs for the initial 12 months are acutally much more than your 12 payments of $875/month will cover, then the landlord will do two things: 1.) send you a written explanation of what the actual CAM costs were for the first 12 months and ask you to pay him for the shortfall, and, 2.) the landlord will increase your monthly CAM payment for the 2nd 12 months of the lease term so that at the end of that next 12 month period, your CAM payments will more closely reimburse him for what the actual CAM costs appear to be based on the CAM costs for your first 12 months.  Got that?

You follow this process for paying the landlord your share of the CAM costs though each consecutive 12 month lease period during the full lease term.

I hope you understand this so far.

There should be some other language in your lease that stipulates with great precision your particular PRO-RATA share of the aggregate CAM cost, and usually additional language that explains exactly how your PRO-RATA Share is calculated.   It is usually expressed as a percentage share of the entire retail center.  If you have a 1,000 square foot shop and the entire shopping center is 20,000 sq. ft. in total, you would have Five Percent(5%) as your pro-rata share of the total CAM costs.  The matter of what your share of the CAM costs are determined to be must be addressed somewhere in your lease. There should also be language in your lease that lists specifically what costs and expenses related to the operation of the retail center that the landlord may include in the calculation of the total CAM costs for the purpose of calculating the CAM reimbursement each tenant must pay.  CAM costs commonly include expenses such as: stripping the parking lot, trash pick-up, repairs to the shopping center marquee signage, electricity consumption of the parking lot and common area lighting, snow removal,etc., etc. If you are correct, and the lease does not address the last two provisions I have discussed immediately above, then there is a problem.  Either you signed a lease that should have contained such detail in the text of the document, or you have overlooked the presence of this language in your lease.

If you signed a lease that does not specify what your PRO-RATA share of the CAM costs are and how they are determined; and which expenses may be included in the aggregation of the overall CAM expense, you have no way of knowing how or if your landlord has calculated you CAM expense share accurately.   In this case, you must amend the lease to include such information or the landlord would be in the position to charge capricious CAM expenses.

You are correct to request a break down of the accounting information and bookkeeping records that support the landlords' CAM charges.  Note that it may be that in your jurisdiction you are required by law to make that request in writing via certified mail to the landlords office.

Additionally, you must check your lease carefully to determine if your lease contains any provision that limits the landlord having to provide you such supporting financial information.   If you signed a lease that specifically in writing does not require that the landlord provide you with such CAM information you have a problem.   In such case you might be limited to a legal action alleging fraud in the assessment of the CAM charges, however you will need to talk with local legal counsel regarding the legal feasibility of such an action.  

If you are not limited by the provisions in your lease from requesting and being supplied the supporting accounting information verifying the accuracy of your landlord's CAM charges, and you have made such request in writing via certified mail to your landlord; you should discuss how to proceed further with local legal counsel experienced in Landlord / Tenant Law if you do not get a written response to your inquiry. I hope that I have made this complex matter more understandable.  Please send me a follow-up question if I can help you further.

Good luck.

-Jim          

---------- FOLLOW-UP ----------

Thank you Jim for the response.  It was extremely helpful.

There are no other provisions or clauses regarding CAM's in the Master Lease. Absolutely nothing.  Only section 3.2 as I provided to you in the prior message.

I need to clarify in simple terms:  Does the Landlord have the right to recover for money lost in CAM's in the next lease year?

There is no breakdown of CAM expenses in the Lease.  This gives the Land lord the right to do whatever he wants in generating CAMs?

Many thanks.

Erik

ANSWER: Erik-

I do not understand what you mean by recovering money "lost in CAM's in the next lease year". By your definition, does "money lost in CAM's" mean that some of the tenants' billed by the landlord for CAM cost in one year did not pay their CAM invoice as billed so the landlord added those uncollected CAM charges into the total CAM expenses for the following year and then billed CAM charges the next year including those "lost"(uncollected)fees?

Or does "money lost in CAM's" mean that there are certain tenants that are not required to reimburse the landlord for CAM expenses in their lease so a certain amount of the total CAM expense - for example 20% - is "lost" because the landlord does not reconcile and invoice 20% of the total CAM costs because those leases do not require them to pay the CAM costs.

I explained previously that the "reconciliation" of the CAM costs was the process by which the landlord adjusted each tenants CAM charge at the end of each year so that the landlord recovered each tenants fair PRO-RATA Share of the CAM costs.   Theoretically, if every tenant has a similar CAM charge reimbursement provision in their lease, the landlord should be fully repaid for each years CAM charges as part of the reconciliation process.

Please describe for me the origin of the "money lost in CAM's", that is, how it is derived by the landlord, what funds exactly is the landlord not collecting and therefore losing money?  When I know this, I can answer your question.  

There must be a complete and defined, detailed break down of each step in the process the landlord shall use to charge the tenants for their annual CAM reimbursement.  If your lease does not define, or detail a specific list of what expenses are included as common area maintenance expenses; then your landlord could claim that any charge can be included as a CAM expense and have the tenants at the center reimburse him for all the charges that he claims are CAM expenses.   For example, if the landlord includes the cost of having his accountant prepare the tax returns for the retail center, is it fair to charge the cost of his tax return preparation to the retail center tenants as CAM expense?  Or if the landlord spends a week at La Costa with the contractor that provides the snow removal service at the retail center; can the landlord charge all of those related travel expenses as a CAM expense to the retail center tenants because he says the two of them discussed the snow removal contract terms during the week at La Costa?   Of course not.

Consequently, it should be obvious that the landlord does not have "the right to do whatever he wants in generating CAM" charges.

Unfortunately, if your lease does not include specific language that defines the details of the CAM charge process as well as a description of what is included annually as a CAM expense, you may have to hire an attorney to challenge the landlord's CAM process in court.

If you have requested - via certified mail - the supporting CAM material from your landlord that allows you to understand the details of how and what the landlord is charging you for, then you have done what is necessary at this point.   If you do not get the information that you have requested from your landlord, you may need to have your attorney file a Landlord & Tenant action in Landlord / Tenant or civil court.  What you are requesting from your landlord is reasonable and I expect that the judge will agree that your request is fair.   If so, the judge should tell the landlord to prepare and provide the accounting and billing process information to you.  You will, however, need to review my suggestions in this regard with your own chosen local council.  Your attorney must review your lease to determine if your lease terms regarding your CAM expenses are as vague and ambiguous as you have described and if my suggestions are feasible and legally appropriate in your jurisdiction.      

Please provide me with more detailed information regarding the derivation of the "lost money in CAM's" as soon as possible.

Sorry for this misunderstanding.  Please get the information back to me ASAP.

Good Luck.

-Jim         

---------- FOLLOW-UP ----------

Thank you for the thorough response.  You are really helping myself with this situation.

Allow me to clarify the question and my situation.

The first Least Year, the Landlord charged me $875 in CAM's.  When the Landlord reconciled his CAM expenses at the end of the lease year, he had underestimated the CAM's approximately over $4,000 dollars.  The second Lease Year, the Landlord charged me 1,825.00 in CAM's.  

I was astonished by the increase.  The Landlord increased the monthly CAM's for the second year based on the first years expenses the AND ADDED THE LOSSES THE LANDLORD INCURRED FROM THE FIRST YEAR.  So I am paying for the new Lease Year CAM's, AND I'm still paying for the CAM expenses(difference in loss) from the prior lease year.

There are no written clauses in the Master Lease other than Section 3.2 as stated above.  

My Attorney tells me there is no clause giving the Landlord the right to recover losses in CAM's by adding them to the next lease year.  Would you agree with this?

I hope this helps.

Thank you so much for your help.

Erik  

[Swain]

Erik-

Your CAM situation may be more efficiently resolved by treating it as a legal problem.  First, check one more time to see if there is a page missing from your copy of the lease.  Does it go up to page 4 and the next page is 6?  Just kidding.

I believe that soon you will discover that your underlying problem is that your lease does not contain enough of the critical industry standard language normally included to define enough of the incremental processes to perform the annual CAM billing process.   

What you have is a lease that basically says: CAM billings will be sent to the tenant each year, the landlord will reconcile the expenses, and the tenant will pay the bill that is sent.  You cannot process the CAM bills without both parties knowing how the charges are determined; i.e., what expenses are specifically to be included in CAM expense bills each year and what portion of the total expenses is your fair ratable share.  In the absence of this important information in the process, the CAM expense can include and calculate to whatever the landlord wants each year. Objectively, there is no way to know how the landlord gets from "here to there".  If he refuses to explain his criteria and process, or allow you to audit his accounting records, I would be even more concerned.

This reminds me of the famous cartoon equation where someone  explains a complicated mathematical problem with the following equation: Step 1.) 6 x 4 = 24, Step 2.) 24 plus 1,456 = 1,480, Step 3.) then a miracle occurs, and Step 4.) you owe me $75,000.   

This computation may be 100% correct, however, it is missing one very critical portion of the calculation, so it is impossible for anyone to know if the calculation has been performed correctly. Your lease is missing the specifics that explain a critical step necessary to make the calculation verifiable to both parties.  There is no explanation of what the expenses are that should be calculated to perform the reconciliation.

I am not qualified to advise you about legal matters, however, I suggest that you discuss with your lawyer the possibility that you may have to file some kind of civil action against your landlord claiming that this CAM provision of your lease is void because it contains a material error: it lacks the written description of the methodology and elements required to fairly perform the CAM billing process each year.  Your attorney should review the critical Maryland Court of Appeals case ruling from about 15 years ago involving "PV Properties" and the Fiduciary Duty of a landlord to his tenant regarding CAM costs.  It is the recognized gold standard in this type of case. I see no other way to resolve this matter unless you and your landlord can mutually agree out of court to add an addendum to your lease that describes the methodology and other missing elements your CAM provision lacks to enable the CAM reimbursement process to operate.          

I am sorry that I cannot give you a tidy means to resolve your problem.  If you had your attorney review this lease BEFORE you signed it, he should have realized that the lease needed some additional work to the CAM provision before ratification.  

Good luck.  Let me know how this matter ends up. I hope you have a good holiday season.

-Jim