Escalation Tracking & Common Area Maintenance (CAM) Analysis
Many commercial leases contain rent escalation clauses. These leases reimburse the landlord for a tenant’s share of capital improvements, taxes, insurance, maintenance, and operating costs.
The leases may be structured in different ways:
- Fixed amounts each year with fixed escalators written into the leases
- Increases based on actual change in operating expenses
- Increases based on changes in a consumer index (i.e. consumer price index (CPI)
An analysis of these costs is important for both the landlord and the tenants:
- The landlord wants assurance that all costs are passed through to the tenant and are timely billed. A review of the procedures to calculate these CAM and escalation costs can help assure the projected profitability of a property.
- The tenant wants to make sure that the additional costs billed are genuine, correctly prorated, and not capital in nature. A review of the bills associated with the CAM and escalation costs would give assurance that the tenant is not being overcharged.