Don’t Let Billing Delays Affect Your Finances

If your lease requires you to pay annual common area maintenance (CAM) costs or operating expenses based on estimates that the owner calculates at the beginning of the year, you should be aware that, although this seems like a simple process in theory, in practice there are many pitfalls for tenants in this situation. Under this CAM arrangement, at the end of the year, the owner must give you reconciliation items—such as a reconciliation statement and proportionate share calculation—that show the actual CAM cost or operating expense amount.

If the owner’s estimates were too high, the owner will then issue you a refund (or credit) for the overpayment. But it’s far from a certainty that the owner will give prompt, fair, and accurate reconciliation items—which is where you’ll run into problems that threaten your bottom line. For example, you may not be able to figure out whether you’ve been overcharged or undercharged; you may miss out on getting back money the owner owes you; or you may be forced to reimburse the owner for a large payment too quickly.

One key point that can help you if you negotiate it for your reconciliation clause in your lease is to require the owner to give you more than just a reconciliation statement. To make an accurate assessment of whether you’ve been overcharged or undercharged for CAM costs or operating expenses, ask for the following items:

  • A reconciliation statement of CAM costs or operating expenses, in reasonable detail, and certified as accurate by the owner;
  • The owner’s calculation of your proportionate share of CAM costs or operating expenses, so that you can ensure your share isn’t larger than it should be;
  • A prompt refund of any overpayment of CAM costs or operating expenses that you paid during that year; and
  • Copies of any relevant backup materials—such as contracts, correspondence, and paid invoices—that you reasonably request.

Another key point to include is a deadline for reconciliation items. Require the owner to give you the reconciliation statement, proportionate share calculation, refund, and copies of any relevant backup materials quickly—say, 60 days—after the end of each calendar year, so you won’t have to wait a long time to see whether you overpaid or underpaid your share of CAM costs or operating expenses.

For more key points to include in your reconciliation statement and a primer on the pushback to expect from the owner, see “Negotiate Four Key Items in CAM Reconciliation Clause,” available to subscribers here.