A Common Area Maintenance charge (CAM) is generally any expense a commercial property relating to the property taxes, insurance, and common area maintenance/repair.

Many commercial leases are silent regarding the verification of the reimbursements to the landlord for the CAM expenses. Thus, without being able to audit the CAM expenses, CAM overcharges may occur.

On Jan. 10 in Division Four of the Second District Appellate Court, there will be oral arguments regarding what could be one of the biggest decisions in years regarding a commercial tenant's right to audit the CAM, emanating from a commercial lease dispute in Santa Clarita.

One of the issues being heard will be whether a tenant has the right to audit the source records of a landlord's statement regarding CAM expenses (if the lease is silent regarding auditing of the CAM).

The tenant stated, "There is no expressed provision in the lease stating that I did not have the right to verify the expenses reimbursed to the landlord. The CAM statement is meaningless without the right to verify the expenses listed on the statement. It goes against public policy and good faith in fair dealing not to have the right to verify a reimbursed expense."

Through discovery in the trial, inclusive of the CAM overcharges alleged by the tenant, over $5,000 in landscaping charges were found through discovery to be billed to the tenants through CAM which had no documentation to support the charges.

In its verdict, the trial court interpreted the phrase in the lease "reasonably detailed statement" to place on the landlord an obligation to present detailed information to the tenant regarding common area expenses rather than simply inform the tenant of the amount that is due and owing.

The court further stated the right to receive this information is established by the plain language of the lease and exists regardless of any ability to audit the landlord and therefore cannot be considered surplusage (i.e. words without meaning).

The tenant asserts, "Even with the detail in the statement, there is still no meaning to the items listed in the statement without being able to verify the supporting documentation that was supposedly used to create that detail. If any statement is not considered surplusage because the party creating the statement is obligated to present detailed information, as this court is deciding, is the court saying there is never a need to verify the statement detail? How does this court justify the needs for auditors such as CPAs to certify financial records or auditors representing Federal, State, and Local governments verifying the accuracy of financial reporting on tax forms? This comment by the court makes no sense."

CAM overcharges have become a major concern among commercial tenants in north Los Angeles County. CAM overcharges caused Patrick Navas to move his established business to a new location.

"Our landlord raised CAM charges approximately 40 percent in two years with no reasonable explanation. When we asked to see an account of the charges, we were denied," said Navas.

Former Assemblyman Tony Strickland, who is running for a seat in the State Senate, stated, "I would believe in any business relationship, such as the landlord/tenant relationship involving CAM charges, where one party is obviously spending another party's money, there must be a way to view the actual records to confirm the expenses are accurate. A summary of those expenses by the landlord is meaningless without the actual records."

"It is most appropriate to see legislation being initiated to provide equal access to due process in landlord/renter negotiation deliberations; this legislation would definitely put landlord/renter negotiation on a level playing field," states Larry Mankin, CEO of the Santa Clarita Valley Chamber of Commerce.

CAM charges have become such a hot button issue, that The Small Business Development Center (SBDC) hosted by College of the Canyons was asked by the City of Santa Clarita to participate in a workshop to educate business owners on how to protect themselves when entering into lease agreements and other issues relevant to business owners.

The SBDC helps prospective and existing small business owners in northern Los Angeles County start, retain or expand their businesses.

The SBDC works to educate small business owners on issues that relate to them. Under the direction of Paul De La Cerda, the SBDC seeks to give small businesses a voice in our local communities.

It works to remove barriers to entrepreneurial growth by conducting business development consulting and training and helping small businesses contribute to the economy.

It also works to educate small business owners prior to signing a lease so that they know how to protect themselves. The SBDC would like to see legislation that protects the small business owner against CAM charge misuse.

In this lawsuit, there are also two other issues being decided by the Appellate Court which are Fraud and illegally obtaining a credit report on the tenant (no authorization).

The SBDC seeks to educate small business owners to ensure that cases like this will not be the norm.

To learn more about this and other issues relating to small business owners, please contact The Small Business Development Center at 661-294-9375.