A commercial space requires upkeep and maintenance – if not for attracting footfalls (Retail – the B2C sector), at least to retain the operation (Office and Industrial – B2B sector). The upkeep and maintenance in the demised premises are usually requested by the Tenant and attended by the Property management team by deploying their vendors; wherein actual expense plus an agreed percentage is charged for supervision. However, when the upkeep and maintenance is for the common area (parking, staircase and other areas; which are of common access to all Tenants) – it is passed through to all the Tenants and the process is termed ‘CAM billing / reconciliation’. During this activity, they also pass the Insurance and Real Estate Property Taxes – therefore, it is widely termed as ‘Year-end billing / reconciliation’.
Based on the Tenant’s capability to negotiate, they would receive various benefits in the lease on CAM, Insurance and RE-Tax areas like:
- Abatement (in addition to what they received for base rent)
- Fixed Pro-rata share (lesser than the actual pro-rata share)
- Exclusion in various expenses (even though, they enjoy the benefit)
- Base year
- CAP
- Recapture rights (based on Percentage rent paid)
- Prop 13 clause
Similarly, Landlord may also impose few items for their benefit, in the form of:
- Fixed Pro-rata share (higher than the actual pro-rata share)
- Gross-Up
- Minimum Lease Limit
- CAP linked to CPI
- Charge for amortization of Capital expenditure or Reserves
Apart from those mentioned in the lease; based on the working comfort, there would be specific methodology:
- Anchor carve-out (exclusions of Anchor Tenant from the computation)
- Limited Services (A specific service, may not be required to a Tenant; therefore, it will be passed through only to the Tenants who were benefited from the service)
- Tax Parcel – property would have been constructed in more than 1 piece of land and the federal might continue to bill each piece separately and the rates will be different among parcels
- Legal fees – In case of Attorney representing any tax appeals or retainers
- Non out-of-pocket expenses (like management fee)
- Adjust the accrual for service received but invoice pending from vendor
- Adjust the pre-paid expenses
- Enclosed malls – where PAD tenants will be billed using GLA of the Shopping Center, other Tenants will be billed on GLA excluding PAD tenant SF and the like
Trivial example:
Landlord may not pass the RE Tax discount, since they pay earlier to claim the discount; wherein Tenant may defend that their monthly escrow has helped Landlord to pay earlier, therefore they should get the discount as well. Again, few of the areas may be amended in the upcoming correspondence between Tenant and the Landlord. While, in most cases there is a budget to this; which would form base for the monthly escrow / deposit to be paid by the Tenant on a monthly basis. Similarly, this reconciliation is for a 12-month period; could be any 12 month and not necessarily Jan to Dec. In any case, it is attended after a long gap of 12 month.
With the growth of technology and the 10s of property management systems / software’s – it is even more complex. Now that these services have been off-shored for almost 2 decades and with the amount of transition as well as the dramatic volume handled – it is computed so precisely, avoiding any Tenant disputes in the future.
Various purposes:
- Per the lease, Landlord is obligated to send out a statement / invoice
- Few leases state that the Year-end bill should reach within 60 day / 90 day from the year-end
- Few Tenants (mostly the Anchor, Major Tenants) will not pay any escrow and will pay the entire amount only when the Year-end CAM is billed
- Few cases, budget would have been delayed and the new escrow was collected only from May or Jun (no catch-up billing), therefore sizeable amount will figure out as due
- Few cases, actuals would have been way higher than the budget
- It would be helpful to better judge the budget for the following year and thereby the following year’s escrow
So, it is wise to bill and collect at the earliest, which helps to boost the cash flow. It also, helps to maintain a healthy relationship with the Tenant.
Whether, it will be manually in excel spreadsheet or in any database; whether the recovery is already set or to be set afresh – we can serve you with high exposure, experienced, enterprising team and can deliver any / all of the below:
- Recovery abstract
- Recovery set-up
- Validate the recovery set-up
- Back-up invoice validation
- Year-end billing
- Year on year variance analysis
- Leakage analysis
- Review the Year-end billing (& either provide discrepancy and / or update the billing)
- Audit the Year-end billing
Based on the scope, deliverables, type of portfolio and size – timeline and pricing to be decided