In the first quarter of every calendar year, commercial property owners send their tenants updated operating expense charges for the upcoming year (“CAM charges”). At National Lease Advisors (NLA), our lease administration team reviews thousands of these budgets each year for our clients. With 2022 CAM audits already underway, the results are in…expenses are increasing at a significantly high rate.
The excuse we are hearing from property managers is consistent. A combination of avoided expenses during the Covid shutdown and deferred maintenance and repairs over the past year are resulting in increases well above any inflation metrics.
At NLA, we do not think the pandemic is an excuse to lose control of expenses. Property managers owe it to their tenants to control the year-over-year costs. Tenants depend on property managers to control expenses, and tenants should challenge the increases when they drop the ball.
What Tenants Can Do to Protect Themselves
Tenants must review and challenge increases that do not seem reasonable. Unfortunately, the presentation of expenses does not always make it easy to identify the cause of increases without some effort and knowledge of commercial real estate. Turning to a third-party consultant like National Lease Advisors for a lease audit can help overcome this roadblock.
Last year, NLA saved their partners almost $1 million by finding erroneous charges that the lease does not permit. In every instance, a well-presented finding from our team resulted in the tenant, property manager, and owner coming to terms on the inconsistencies and errors we highlighted.
Understanding the Review Process
National Lease Advisors can complete a complimentary CAM review with just the lease document and the most recent CAM statements received from the landlord. The landlord is not involved in this stage, and no “audit” as defined in the lease is taking place. It is here that we can provide tenants peace of mind that the charges are reasonable or share concerns that may merit further investigation.
If we identify discrepancies that are material enough to merit further investigation, our team reaches out to your landlord to inquire about the charges in question. This stage is not threatening to the landlord but simply an opportunity to ask questions or highlight what we believe may be inconsistent with the lease.
Depending on the amount of time required for the landlord to respond and understand our concerns, the entire process could take as little as a week or a few months.
Show the Property Manager You Are Paying Attention
Some tenants may be concerned that an inquiry, especially by a third-party consultant, will impact their relationship with the landlord. This could be the case if an auditor is selected that puts their interests over the tenant. At NLA, our team has a background in property management and understands how to manage tenant-landlord relationships in a fair and non-threatening manner. We also know when an expense is reasonable or unreasonable, so we avoid challenging charges that are unlikely to provide our partners with savings.
Audit Rights Not Required to Question Charges
Many tenants mistakenly believe that an inquiry requires a formal audit. At National Lease Advisors, we rarely trigger the lease audit provisions of the lease. Instead, we act as advisors for our partners and inquire to the landlord on their behalf to ask the right questions.
The reality is that 95% of mistakes result from the landlord not accounting per industry standards, not honoring the provisions of the lease, or simply human error.
At National Lease Advisors, we find that the lease audit language does little for the tenant and is there to protect the landlord. From limited windows to exercise these rights or the need to hire a national accounting firm (most of whom don’t even provide lease audit services), the language is a fear tactic intended to prevent tenants from rightly investigating the validity of the charges.
It is critical that tenants with significant CAM charges review the budgets and reconciliations presented by the landlord for accuracy. People with good intentions prepare these statements, but mistakes are prevalent, and the savings opportunity is significant.
National Lease Advisors can help tenants navigate this process with a complimentary review and proceed on a contingency success basis if both parties agree that such an effort would benefit the tenant.