Understanding Operating Expenses
The cost of maintaining a property or a building, commonly referred to as Common Area Maintenance (CAM) or operating expenses, is typically considered a shared expense between a landlord and a tenant. These expenses can include utilities, taxes, insurance, maintenance, cleaning, advertising, and promotions. The actual expenses are normally based on the percentage of the space that is occupied (pro rata share) and is detailed in the actual lease. The PeopleSoft Lease Administration system enables you to set up recurring invoices or payments for estimated operating expense charges and also perform end-of-year audits and reconciliation for those shared expenses.
Typically, on an annual basis, the landlord breaks down all estimated operating expenses for the year and passes those charges through to the tenants on a monthly basis based on how much of the building that they are occupying. Since the monthly amount that is invoiced or paid is based on an estimate, the system tracks all invoices and payments that are made. At the end of the year, the landlord reconciles the estimated expenses with actual costs. A credit is issued to the tenant for overpayment or an invoice for underpayment. After the reconciliation is complete, the landlord uses that data to better estimate the upcoming year's expenses and provide a new budget and estimated bill amount. Tenants can hold CAM audits in situations where they believe that the costs are inaccurate or if they just want to verify the estimates against actuals.
Catch up payments are the adjustment payment for the first months of the new year. Catch up payments are the difference between the estimated payment amount paid to date in a new lease year (which has been paid at the prior year estimated payment amount) and the amount due per the new estimated payment amount. It may be possible for this to be a negative number, which would be treated as a credit. During the revision of the annual expenses through an amendment, the catch up amount should be recorded at the category level. This catch up payment will be added to the first transaction that will be sent to the transaction queue after the amendment is activated.