| According to Landlords, "A CAM audit is about as welcome as a trip to the dentist" |
Over the last several years, tenants have become increasingly aware of the high cost of CAM and the even higher cost of doing nothing about it. A retailer that does not review its occupancy costs and attempt professionally to recover overcharges is not doing its employees or its shareholders any good. Unfortunately, landlords don't always see it that way. Case in point: the March 2000 edition of Shopping Center Management Insider states bluntly, "A CAM audit is about as welcome as a trip to the dentist." It then suggests that one way to discourage retailers is to tell them they will be billed for the costs of the audit. "If your lease does let you bill the tenant, you may be able to persuade it to cancel a pending audit by reminding it before it starts the audit that it will have to reimburse you for these costs . . . And if the tenant still want to go through with the audit, even after you remind it of the costs involved, it may cut the audit short and be discouraged from requesting future audits when it sees how much it has to spend to audit your center . . . "
P.S. We had to laugh when it suggested that expenses would include 25 cents per page copying, $40 an hour personnel, and on top of that, a $40 per request charge. Wait till they add an administrative fee!
Several years ago, perhaps mis-guided by some bad legal advice, landlords started tacking on a "management fee" to CAM, in addition to line-item management charges (ie: for the mall manager, his/her staff, the operations manager, etc.). The fact is that, unless specifically permitted by the lease, these management fees (usually in the range of 3-5% of gross revenue) cannot be passed on to the tenant regardless of whether the landlord pays a management fee to the managing agent. More on this on the Retaillaw.com Legal Page and in the May issue of Shopping Center World (in an article written by Robert Machson).
| "Hey, what's in this bill?" |
Believe it or not, management fees are frequently hidden within the CAM statement. Short of calling the landlord ("hey, what's in this bill?") We suggest you check whether the administrative charge is actually less than the fixed percentage (usually 15 or 18 percent), of operating costs. If the landlord has "under charged" the administrative charge, it usually means that there is a hidden management fee. (We find it amusing that while most landlords have no problem secretly throwing in a management fee, many restrain themselves from tacking an administrative charge onto the management fee (but it's been done!).
Download a sample audit agreement in PDF or WORD format here.
Joint Audits
Over the past 15 years, Robert Machson has represented dozens of large chain retailers in "joint audits". A joint audit is simply an audit conducted "jointly" on behalf of a number of retailers of the same landlord.
The advantages of a joint audit are simple:
- reduced costs (usually no more than 30 percent of the total recovery) with flat fees and no dependency upon "contingent-fee" auditors
- Power -- and confidence -- in numbers
- Ability to hire experienced attorneys, auditors, and specialists at no additional charge
The workings of a joint audit are simple. Tenants join together solely to share the overhead of the audit expenses and to be represented by our firm. No confidential information, either about the tenants themselves, or their audit findings, is disclosed. Each tenant receives an audit report that is unique to their leases and their landlord billings. When it comes time to settle the audit, each tenant is represented individually by Robert Machson. Unless the Landlord chooses to settle the audit simultaneously with all tenants (and some do), no other tenant is informed as to the results of the settlement with another tenant.
We have several "joint audits" underway at this time and more are planned. If youčre interested in this opportunity to audit your larger landlords without feeling left at the edge of the "plank," feel free to contract us (and we will refer you to past and current "joint" tenants so that you can hear first hand how they've done.)
