Setting Up Operating Expenses

This chapter provides an overview of operating expenses and discusses how to:

Establish recurring operating expenses on a lease.
Perform operating expense audits for payables leases.
Reconcile operating expenses for receivables leases.

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 Real Estate Management 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.

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 of 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.

Prerequisites

Before you can set up operating expenses, you must:

Set up the billing charge code.
Set up the operating expense categories.
Associate the billing charge code with the operating expense categories.
Add accounting rules for those operating expense categories/routing codes.

See Understanding Operating Expense Categories.

Common Elements Used in This Chapter

Start Date	Enter the begin date for the operating expense. The start date must occur after the lease start date and before the audit end date and current date.
End Date	Enter the end date for the operating expense. The start date must occur after the lease start date and audit start date and before the current date.
Add Category	Click the button to create a new operating expense category for the lease.

Creating Operating Expenses for a Lease

This section provides an overview operating expenses and discusses how to create operating expenses for a lease.

Pages Used to Set Up Operating Expenses

Page Name	Object Name	Navigation	Usage
Create New Lease - Operating Expense Details	RE_LS_TRM_SEC	Lease Administration, Payables Leases, Create New Lease Lease Administration, Receivables Leases, Create New Lease Lease Administration, Payables Leases, Maintain Lease Lease Administration, Receivables Leases, Maintain Lease Select the Financial Terms page. Click Add Operating Expense button on the Financial Terms page.	Define an operating expense for the lease. When you establish your operating expense details, you can set up categories and minimum and maximum amounts for that operating expense.

Establish Operating Expense Details

Access the Operating Expenses Details page.

Operating Expense Categories

Operating Expense	Enter or select the operating expense category for recoverable shared expenses.
Estimated Amount	Enter the estimated amount for the operating expense. Use the estimated amount for monthly recurring invoices or payments.
Min Amount (minimum amount)	Enter the minimum amount for the operating expense. Note. This field is for information use only.
Max Amount (maximum amount)	Enter the maximum amount to charge for the operating expense. Use this field to calculate audit alerts during the audit and reconciliation processes.
Administration Fee	Enter the administration fee. The system adds this amount to the operating expense charges after final calculations of all operating expenses for the lease.
Straightline	Select to apply straightline calculations to the operating expense. Note. If the rent amount or recurring expense amount for the operating expense is not evenly billed across periods, then those amounts must be reported in the general ledger on a straightline basis (an even distribution). See Understanding Straightline Accounting.
Calculate	Click the button to calculate the recurring monthly operating expenses. Note. This button is only available when adding new operating expenses.
Total Estimated Payments	Displays the total estimated payment amount for the operating expenses.
Schedule	Select a value from the prompt table to specify how often to invoice or pay the operating expenses. Use this field to determine the frequency of the invoice or payment. The values from which you select come from the Schedule component. Note. If the value you need is not available, refer to the Schedule component to add additional values. See Defining Common Journal Definitions.
Frequency	Displays the frequency that is associated with the schedule that you selected.
Anticipated Process Date	Displays the current anticipated processing date or the next date on which a transaction is available to be approved and sent to Payables or Billing. Note. You must run the Transaction Generator to get the scheduled transactions into the transaction queue. Note. This field is only available on an operating expense that is processed.

Performing Operating Expense Audits for a Payables Lease

This section provides an overview of operating expense audits and discusses how to:

Perform an operating expense audit for a payables lease.
Compare operating expenses with a prior audit.

Understanding Operating Expense Audits

The Real Estate Management system provides you, the tenant, with the ability to reconcile annual operating expenses or CAM against your estimated payments. When the landlord sends the annual CAM reconciliation statement with any invoice or credit against the estimated payments that you have made, you can compare the information against your records of estimated payments, as well as prior years' CAM charges. If the charges significantly increase or decrease or the data that is provided by the landlord is insufficient, you might initiate a formal CAM audit.

You can use the audit operating expense worksheet in the system to enter the values for each expense category. The system compares the data that you entered against the data that is stored in the lease, and the system flags any value that exceeds a certain tolerance threshold.

Note. You set up the tolerance threshold at implementation in the Real Estate Management business unit.

After you have reviewed and compared the data in the worksheet and are satisfied with the final calculated numbers, you can issue a manual payment for any underpayments. If an overpayment occurs, you can create a negative payables line and apply it to any future payments, or, the landlord can issue a refund check or credit.

Prerequisites

Before you can perform an operating expense audit, the lease that you are auditing must be in active, expired, or holdover state. You must also enter operating expenses terms against the lease.

Page Used to Audit Operating Expenses

Page Name	Object Name	Navigation	Usage
Operating Expense Audit	RE_OPEXAUDIT	Lease Administration, Payables Lease, Audit Operating Expenses	Create an operating expense worksheet to compare estimated operating expense payments against actual expenses.
Compare Operating Expenses with Prior Audit	RE_OPEXAUDIT_CMP	Lease Administration, Payables Lease, Audit Operating Expenses Click the Compare Previous Audit link.	Displays the current audit data and prior audit data, if available. You can use this comparison data to ensure continuity in operating expense charges from year to year.

Perform Operating Expense Audits

Access the Audit Operating Expenses - Operating Expense Audit page.

Occupancy Percent

Displays the occupancy percentage (percent of total rentable area and between 0 and 100).

Note. The system uses occupancy percent to calculate the Adjusted Actual Amount for each of the audit categories. The formula is Adjusted Actual Amount = Actual Amount × (Occupancy percent ÷ 100).

Audit Number

Displays the sequential number that is assigned to this audit.

Lease Terms

The lease terms group box displays the values setup on the lease you select for this audit.

Prorata Share	Displays the percentage of the total area that you are occupying. The value defaults from the lease. Note. The field is informational only. The system does not use the field for any calculations.
Total Rentable Area	Displays the total area that is available for rent from the lease. The system uses this value to calculate the Cost per Sq Unit (cost per square unit) for each of the audit categories.
Max Op. Ex. Increase/Year (maximum operating expense increase per year)	Displays the maximum percentage increase or amount increase for all operating expense charges for the year. This field is informational only and defaults from the lease.
Base Year Amount	Displays the operating expense amount that is charged for the first year of the lease. This is informational only. Note. If you do not select the Base Year Exclusion option on the Financial Terms page, the base year exclusion, base year, and base year amount fields are not available.
Lease Currency	Displays the currency code from the lease.
Override Admin Fee (override administrative fee)	Select to edit or override payment of the administrative fee. If you clear this field, the system automatically computes the administration fee from the lease based on the audit start and end dates. Note. The system adds the administrative fee to the operating expense charges after final calculations.
Revision History	Click the link to view all the previous revisions of the audit. Note. This link appears only when there is more than one audit revision.

Operating Expense Categories

Paid Amount	Enter the amount paid for each operating expense category.
Actual Amount	Enter the actual amount on the reconciliation statement that is provided by the landlord. The statement provides an actual amount that is incurred for that expense category.
Adj Actual Amt (adjusted actual amount)	Displays the adjusted actual amount based on the occupancy percent. The system uses this calculation method: Adjusted Actual Amount = Actual Amount × (Occupancy percent ÷ 100).
Admin Fee (administrative fee)	Displays the administrative fee amount from the lease terms. Note. This field is editable if the Override Admin Fee check box is selected.
Diff Amt (differential amount)	Displays the amount that is owed or invoiced for the category.
Cost/SqUnit (cost per square unit)	Displays the cost of the space per square feet or square meter. The calculations are based on the unit of measure that is defined on the lease.
Audit Alerts	Displays the category amount that exceeded the same category amount for the prior audit period. The tolerance is also higher than it was originally defined at the business unit level. This field also alerts you that the category has exceeded the category maximum that was set on that lease. The system displays the alerts when you click the Calculate button. Note. This field is informational only and alerts you when there is a discrepancy.
Calculate	Click the button to calculate the total lines that were entered. When you click the button, the system calculates the difference between the paid amount and the actual amounts and displays the totals and the adjustments.
Administrative Fee	Displays the total administrative fee to be paid.
Total Paid To Landlord	Displays the total operating expenses that were paid to the landlord.
Total Adjusted Actual Amount	Displays the total amount of the operating expense. The systems adds all operating expense amounts based on the reconciliation statement that is provided by the landlord.
Amount	Displays the difference between the total paid to the landlord and the adjusted actual amount.
Create Payment	Click to create a payment for underpayment of the operating expenses for the year. When you click on this button, the system sends the transaction to the transaction queue for payment processing.
Compare Previous Audit	Click the link to select the previous audit for comparison, if it exists. The system bases the comparison on the audit end dates. The previous audit is the one with an audit end date less the current audit end dates. The system retrieves the two audits and displays them side-by-side. The system flags category differences from year-to-year and identifies massive increases or charges that are above the maximum that is allowed. If the system cannot find a category match, it separates those categories that are not available for comparison.

Compare Operating Expenses with Previous Audit

This page enables to you compare and audit operating expenses against previous audit data, if it exists. The system retrieves the two audits and displays them side-by-side. The system flags category differences from year-to-year and identifies massive increases or charges that are above the maximum that is allowed. If the system cannot find a category match, it separates those categories that are not available for comparison.

Click the Compare Previous Audit link to access the Compare Operating Expenses with Previous Audit page.

Current Period

Displays the date range for this audit period.

Prior Period

Displays the date range for the prior audit period that you are comparing.

Common Operating Expense Audits for Current and Prior Audits

Current Actual	Displays the current actual amount from the reconciliation statement.
Prior Actual	Displays the previous audit actual amount.
Difference % (difference percentage)	Displays the percentage difference between the current actual amount and the prior actual amount.
Diff Amt (difference amount)	Displays the difference amount. (Current Actual - Prior Actual / Prior Actual).
Current Cost/Sq Unit (current cost per square unit)	Displays the current cost per square unit. (Cost /Sq Unit = Adjusted Actual Amount ÷ Total Rentable Area).
Prior Cost/Sq Unit (prior cost per square unit)	Displays the prior cost per square unit. (prior post/Sq Unit = Prior Actual Amount ÷ Prior Total Rentable Area).

Unmatched Categories

When the system cannot match up one or more categories from a previous audit with the categories from the current audit, the system displays the discrepancies in the fields below. This occurs when you create a new category or an existing category from a previous audit does not exist, or if you change the category mid-year. As a result, the system is unable to provide any comparisons for these categories because there is no exact match.

Calculated Total for Current and Prior Audits

Current Landlord Actuals	Displays the total amount that is paid to the landlord. This amount might differ from the reconciliation statement that is provided by the landlord. The current actual amount paid is based on an estimate that is provided to you at the beginning of the lease.
Prior Landlord Actuals	Displays the total amount you paid to the landlord in the prior period.
Landlord Actuals Difference	Displays the difference between the prior actual amount and the current actual amount.
Current Tenant Actuals	Displays the current total amount that is paid by the tenant.
Tenant Actuals Difference	Displays the total amount that the tenant paid in the prior audit.
Current Rentable Area	Displays the current total rentable area in the lease.
Prior Rentable Area	Displays the total rentable area in the prior audit.
Rentable Area Difference	Displays the difference between the current and prior rentable area in the lease.
Current Cost Per Sq Unit (current cost per square unit)	Displays the total current cost per square unit.
Prior Cost/SQ Unit (prior cost per square unit)	Displays the total prior cost per square unit.
Cost/SQ Unit Difference (cost per square unit difference)	Displays the difference of the total cost per square unit between the current period and the prior periods.

Reconciling Operating Expenses for Receivables Leases

This section provides an overview of reconciling operating expenses and discusses how to reconcile operating expenses.

Understanding Operating Expense Reconciliation

Real Estate Management enables you to reconcile your recoverable operating expenses for the year and compare the expenses against what the tenants in that building paid in estimated charges. After the charges have been collected for the year, you can categorize the charges among the list of operating expense categories that were originally identified on the lease.

After the totals of the charges for the year have been tallied and categorized, you can break down the charges among the tenants based on the space that they occupy in the building. This is handled by the pro rata share percentage, which is the calculation of the tenant’s square footage divided by the total building square footage.

When the charges are categorized, you collate all of the estimated payments by each tenant for the year and compare them against the total prorated operating expense or CAM charges to determine if there has been an overpayment or an underpayment (this includes verifying any base year exclusion or annual cap/expense stop clauses). In the case of an overpayment, you can issue a credit to the tenant (usually to be applied against future rent payments). In the case of an underpayment, you can issue an invoice for the remaining sum.

To generate a credit or an invoice on the Billing Review page, enter the billing rows as either negative or positive by clicking on the Create Invoice button on the Operating Expense Statement page. You can print and include the reconciliation worksheet to serve as the statement to accompany the invoice or payment. You can also use this worksheet to project a new estimated budget for the upcoming year and pass that information on to the tenant to serve as the new monthly operating expense payment.

In addition to the invoice or payment credit, you can include an operating expense actuals breakdown statement as well as a new estimated operating expense breakdown for the new year. If the amount is different, the tenant can convert to paying the new estimated operating expense charges as a new monthly recurring payment.

Pages Used to Reconcile Operating Expenses

Page Name	Object Name	Navigation	Usage
Reconcile Operating Expenses - Operating Expense Statement	RE_OPEXAUDIT	Lease Administration, Receivables Lease, Reconcile Operating Expenses	Compare operating expenses to the operating expense statement to reconcile paid expenses against actuals.
Compare Operating Expenses with Prior Statement	RE_OPEXAUDIT_CMP	Lease Administration, Receivables Lease, Reconcile Operating Expenses Click the Compare Previous Audit link.	Displays the current reconciliation data and prior reconciliation data. You can use this comparison data to ensure continuity in operating expense charges.

Reconcile Operating Expenses

Access the Reconcile Operating Expenses - Operating Expense Statement page.

Note. The fields on this page functions the same as the fields on the Audit Operating Expenses - Operating Expense Audit page. The Tenant field on this page is labeled Landlord on the Audit Operating Expenses - Operating Expense Audit page.

See Perform Operating Expense Audits.

Compare Previous Operating Expense Reconciliation

Access the Reconcile Operating Expenses - Compare Operating Expenses with Prior Statement page.

The fields on this page function in the same way as the fields on the Audit Operating Expenses - Compare Operating Expense with Prior Audit page. The Landlord field on this page is labeled Tenant on the Operating Expenses - Compare Operating Expense with Prior Audit page.

See Compare Operating Expenses with Previous Audit.

Current Period	Displays the date range for this audit period.
Prior Period	Displays the date range for the prior audit period that you are comparing.