Commercial Real Estate Investment/Cam Charge

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Expert: Jim Avancena, CPM - 9/10/2009


Question
Our Cam Charges have increased 3 times the original amount in 6 Years. I questioned the Property Manager on R@M for roof repairs.
There has been over $80,000 billed in the last three years on the reconciliation I ordered. Her response is that this is a maintenance charge that is part of our Cam Expense. I know I signed the lease but it sounds like their padding and we have no
way of fighting it. I realize that my portion would be less then taking it to the next level.  Any recourse??? or do I suck it up to David and Goliath.

Answer
Dave-

Suck it up buddy.

Usually $80,000 is considered a capital expense.  I would not consider it a true CAM expense because of the aggregate amount of the expenditure.  You can look at the actual roof "repair" invoices that combine to total $80,000 and see if the description given for each invoice results in the complete roof being replaced after $80,000 in component payments.   Don't be surprised however if the description does not match the actual roof work that was done.  There have been landlords that have had the roof on their home replaced and the contractor has been happy to describe the new roof at his home on the invoice as "roof repairs to the shopping center at ____________".    

Often owners will call replacing the entire roof of a project in sections of 1/3 each year, "Tax Planning".  They believe that IRS accepts the replacement as a valid "repair" and not a capital expenditure because they spread out the job over three years.   I don't not know if such "tax planning" is acceptable to IRS or not.

You seem to have figured out how difficult it is to verify the reality of the CAM expenses; you must vouch each individual charge for the year, and then, if there is a serious question about the supporting documents, you must risk spending your own funds to support your legal expense - and perhaps losing money - even if your corrections are found to be correct by the court.

You may have signed a lease that allows the landlord to include capital expenditures as bona-fide CAM reimbursable expense.  See if the word "replacements" is included the the definition in your lease for common area maintenance costs.  Tenants consider replacing one light fixture a replacement, however, many landlords include replacing the entire roof, repaving the entire parking lot, rebuilding a large retaining wall, and installing a complete new electrical system, etc., as "replacements" also.   Although I have my own opinions in these regards; you need to obtain an attorney's opinion who specializes in landlord/tenant law to get valid legal advice.

Send me a follow-up question if I can give you more detailed assistance.

Good luck.

-Jim

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Jim Avancena, CPM

Expertise

Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.

Experience

Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.

Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.

Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".

Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.

Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.

Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.

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