Questions about how to request audit or proceed with CAM charges in poor landlord/tenant/property manager relationship.
Context: I purchased a company about a year ago from the landlord of a multi unit commercial complex. The business came with a 5 yr lease. Landlord planned to continue to work in the business and I could not afford to keep him on staff, the contract did not state any employment agreement. I was also unable to rehire a financial manager in his business that had committed fraud and was not actually any good at finance(see below). One sued me previously and one is currently. They are now my property manager and landlord.

Question: I was sent a CAM report per the lease a few weeks ago. It is wrought with accounting errors, me or my accountant can’t make sense of how the numbers were even calculated. The percentages I owe are wrong and they have admitting to adding in item such as an ac unit to this years CAM which is supposed to be amortized over 12yrs.  The changes with just the two errors have made a difference of $6000 owed initially and will change my CAM over $12000 for the year. My lease says a reasonably detailed report for the charges is owed but does not give me any clear right to audit. They have given me an extremely basic report with final balances in each category. Do you think at this point it’s worth requesting an audit and risking them starting eviction? He threatened eviction last month over a 1 day late payment which was actually mailed and postmarked on time. 

I realize what a giant dumpster fire I am involved in. Thanks in advance for any advice.
[{"id": "gql0hcd", "text": "Hi there. In your lease agreement, does it specify that capital improvements can be amortized over the life of the asset? I manage a few leases where this is NOT the case, and if they are trying to pass that expense back to you without that language in the Lease Agreement, you\u2019ve got every right to contest it.\n\nEven though you may not have audit rights per se, you deserve an accurate statement of budgeted vs actual expenses, with an accompanying excel sheet explaining/calculating the errors you\u2019ve mentioned.\n\nWhat state/jurisdiction do you reside in?", "replies": [{"id": "gqo2sv7", "text": "California, I have consulted with an attorney and his advice has been to let the landlord pursue eviction and fight it. I\u2019ve had too much experience with attorneys and it seems they are always interested in fighting things out as that is what gets them paid. I think with the amount of errors in their report it should give me a good basis to contest the charges", "replies": [], "depth": 2}], "depth": 1}, {"id": "gql0jq2", "text": "I have been in CRE for 26 years, the last 12 as an Asset Manager. My advice to you is to seek the advice of an attorney in your jurisdiction with experience in real estate contract disputes.  Even though your lease contract may not contain a CAM audit provision, they cannot commit fraud either.", "replies": [{"id": "gql6tkg", "text": "Agreed....  a good legal letter should shake out better info. There are also consultants that handle CAM disputes on the tenants side (I\u2019m on the landlord side so we deal with them  and they are effective).", "replies": [{"id": "gqlyhju", "text": "&gt; There are also consultants that handle CAM disputes on the tenants side\n\nare those local or national?  I'd love to add some of those to my contacts for when this crap comes up", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gqlfln3", "text": "As someone on the LL side, we try and pass things through to the tenant as much as possible within the guidelines of the lease. There are a lot of grey areas in \"deferred maintenance\" on whether and HVAC replacement can be classified as capex/operating expense. If this is one of the grey area's in the lease language, I would push back on the LL. If it is clearly defined that they can pass through these things, you may be SOL. If it's something like your pro-rate share being off, I would not pay anything until they fixed.", "replies": [{"id": "gqo2zyz", "text": "Thanks for the advice. Good to hear feedback from the other side", "replies": [], "depth": 2}, {"id": "gqp6lmg", "text": "The prorated share is calculated incorrectly (they increased the percentage 3%) and the lease states that any repairs to the property that have a lifespan over 5yrs are to be amortized into cam over 144 months. The report provided had $15000 for repairs this year and estimated $5000 for next. So I said hey this all looks great(it didnt) do you mind telling me what the surprise repair was that we aren\u2019t expecting for next year, obviously it tripled the repair budget. She stated it was ac unit and furnace that was replaced from the original in 2005. I replied to with that it seems it has a functional life of 15yrs and should be amortized. I have yet to hear back. But yes the lease states how to handle these things, I think the grey area is they did give me a report and the lease doesn\u2019t give me the right to audit them. I think with the amount of errors it would be in good faith for them to allow it. He is already trying to settle after serving me about 3wks ago so it seems like it might be worth it to put some legal pressure on him if I get pushback. I\u2019m also looking at globally trying to resolve his claim by amending the lease to have a fixed cam and rent for the remainder of the lease.", "replies": [{"id": "gqpdz1z", "text": "Nice! Fixed CAM will help you sleep better at night, but it's usually pretty tough to negotiate in. I will say lease language tend to be ambiguous on amortization, all because HVAC has a useful life of 15 years according to the IRS doesn't mean the LL needs to pass it through to you that way. We typically use 5 years for DM pass throughs, but we have the ability to adjust it as necessary as to not nail a tenant when a major repair occurs. Most of this stuff comes down to lease negotiation tactics and what the tenant can leverage at the time of the deal. We will bend over backwards (fixed CAM, exclusions, Caps etc) if you are Chic-Fil-a/grocery store, but the smaller biz's typically don't have that kind pull.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gqlpb3n", "text": "Also check what it is the norm pdf for your type of building in your location", "replies": [], "depth": 1}, {"id": "gqly6tz", "text": "I think you need to think big picture.  You are 1 year into a lease with 4 left where you are in litigation already vs a landlord who seems to really want to kick you out and give you the screws.  Do you even want to be here 4 years more or is moving an option?  \n\nAn attorney needs to tell you what exposure you have to default over this issue and you need to decide as a business strategy how you want to handle this global situation IMO.   Common sense would tell you (and it has) that they haven't given you a correct report that is reasonably detailed per the lease.  It is a litigation and business strategy question now, and you should think about it like that.", "replies": [{"id": "gqo2yku", "text": "Thanks. I don\u2019t want to be in the space for 4yrs but I don\u2019t have a place to go currently and due to the nature of the business, accommodation of a new space could take 4-6mo. Some of my thoughts have been to find a good spot and let him start eviction and then I\u2019m out of the lease.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gqlzkja", "text": " Agree.  If there is no audit right stated, it does NOT preclude you from auditing or requesting additional financial support or adjustment to CAM. Replacement of HVAC should be excluded or amortized based on your lease.", "replies": [{"id": "gqo31s3", "text": "Thanks, I feel like with them making errors in percentage owed etc it should give good reason to audit", "replies": [], "depth": 2}], "depth": 1}, {"id": "gqm5qsh", "text": "This is a legal issue for your attorney to handle, without a doubt. You're in litigation with these people over directly related issues. Their handling (or mishandling) of this lease administration is a relevant part of that litigation. It's all one big mess, and it should be handled as one big mess by one set of attorneys.", "replies": [], "depth": 1}, {"id": "gqm74pr", "text": "Comments are correct, the bigger issue begs the services of a competent real estate attorney. An examination of actual landlord expenses, and required reimbursements doesn't necessarily have to be adversarial, it can be as easy as showing detailed calculations based on the lease language and actual incurred expenses. I've seen expense caps exceeded, area miscalculated, etc.", "replies": [{"id": "gqo39i9", "text": "I have a real estate attorney, I\u2019m just really sick of them. All the attorneys want to seem to do is go to court. In the end they always win and I\u2019m paying huge bills. I probably should have mentioned I\u2019m using an attorney in the post. I guess I\u2019m looking for real work experience of how people would reasonably proceed. I talked with another set of attorneys today who think we should pursue retaliatory charges against him and or fraud for his behavior as a landlord. Not sure how I feel about it when I don\u2019t have any easy way to leave the building.", "replies": [{"id": "gqogwve", "text": "Has anyone penciled out the differences between the landlords billing statement and lease terms? All of the common real accounting systems can easily produce a breakdown of CAM reconciliation, I\u2019d use this as a start. It\u2019s not an audit but definitely a way to come up with a concrete list of potential errors or oversights (being charitable) that you can document and explore. Once you figure out the line-item facts you can dispute the amounts in question, I\u2019ve seen (check with an attorney here!!!!) amounts held in escrow if the lease allows.  Lawsuits, as you are finding out, can be expensive and a huge distraction.", "replies": [{"id": "gqp7kn6", "text": "So we have a basic report that has yearly totals which is ridiculous. \n\nBook keeping: $10000\nIrrigation: $8000\nWater: $6000\nLandscaping: $13000\nTaxes: $6M\n\nNot actual numbers but it literally looks like a word document and none of the numbers add up or make sense and I\u2019ve had my accountant review it I\u2019ve reviewed it and my book keeper. We all got the same numbers which were different than theirs. What is the chance they didn\u2019t make errors getting to the numbers they provided me with. I think the argument could be made that this is not a reasonably detailed report. And since their mistakes would have increased my cam about 50% which is a huge amount, it\u2019s reasonable to get some sort of more detailed report. I also just this morning found a report in the office from 2017 and it is about 10x more detailed showing each vendor and their invoice total for the year and each tenant portion of the cam.", "replies": [{"id": "gqp9nsh", "text": "OK, so it's a 50% increase in overall expenses for the property or just that your share is 50% higher? Usually there are caps on expenses but this seems like a lease they signed with themselves. Taxes might be an easy one to check without backup- do the gross amounts from '17 and for the recent period ('19/20) line up with what the county website shows for all associated PIN's? My only thinking is to find something obvious and compelling to get them to the table and negotiate this thing out to give you time to move and not default", "replies": [{"id": "gqpc5em", "text": "My own personal share went from $3000, to $4200/mo. With back cam from last year totaling about $13000. The first correction on percentage I brought to them changed it to $10000 in back cam and $3700/mo., the ac unit and furnace would bring the numbers to $8000 in back and mildly increase the monthly. So it\u2019s $6000 off up front and about the same per year at this point. The taxes are a great place to look as well.", "replies": [{"id": "gqpk0e5", "text": "If it helps the monthly increase makes sense if (1) the shortfall from last year is accurate ($13k), and (2) they expect this total to continue in '21. Most leases have you paying an estimated amount monthly based on some forecast and then true-up after the books close. Did they add or replace HVAC and is it exclusively in use by your unit?", "replies": [{"id": "gqrgwh5", "text": "They replaced a defective furnace and ac unit. It is in a different building in the project. He also added a clause before the purchase that i alone am responsible for the hvac in my unit. I came to the endeavor with money I\u2019ll leave with experience. Oof.", "replies": [{"id": "gqufamz", "text": "Just sent you a dm", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]