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* Understanding CAM (Common Area Maintenance) Charges in Leasing

Posted by admin2024 on August 2, 2024
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Understanding CAM (Common Area Maintenance) Charges in Leasing

For businesses leasing commercial property, understanding the breakdown of costs is essential for effective financial planning. One of the key components of a commercial lease is Common Area Maintenance (CAM) charges, a term that often raises questions among tenants.

In this blog, we’ll break down what CAM charges are, how they are calculated, and what tenants should look for when reviewing lease agreements.

What Are CAM Charges?

CAM charges are fees tenants pay to cover the upkeep and maintenance of shared spaces in a commercial property. These areas, referred to as common areas, may include:

  • Parking lots
  • Lobbies and hallways
  • Elevators and stairwells
  • Landscaping and outdoor lighting
  • Restrooms in multi-tenant buildings

CAM charges ensure these shared spaces are functional, safe, and aesthetically pleasing for all tenants and their customers.

 

How Are CAM Charges Calculated?

  1. Gross Lease vs. Net Lease

CAM charges are typically part of net leases (e.g., triple net leases), where tenants pay base rent plus additional expenses like property taxes, insurance, and CAM fees. In contrast, gross leases may include these costs in the total rent.

  1. Pro-Rata Share

Tenants usually pay a proportionate share of CAM charges based on the square footage they occupy. For example, if your space accounts for 20% of the property’s leasable area, you would be responsible for 20% of the total CAM expenses.

  1. Operating Expense Inclusions

CAM charges may include costs for:

  • Routine maintenance (e.g., janitorial services, landscaping)
  • Repairs (e.g., roof patching, HVAC fixes)
  • Utilities for common areas
  • Security services
  • Property management fees

Types of CAM Charges

  1. Fixed CAM Charges

Some leases feature a fixed CAM fee, offering predictability by setting a consistent monthly charge.

  1. Variable CAM Charges

Other leases use variable CAM charges based on actual expenses incurred. These charges may fluctuate annually, making them less predictable.

  1. Capital Expenditures

Tenants should be aware of how capital improvements (e.g., repaving a parking lot or installing energy-efficient lighting) are treated. Some leases allow landlords to pass these costs onto tenants through CAM charges, often amortized over several years.

CAM Reconciliation and Auditing

Many landlords provide an annual reconciliation of CAM charges. This process compares actual expenses to the estimated amounts tenants paid throughout the year. If there’s a shortfall, tenants may owe the difference; if there’s an overpayment, tenants may receive a refund or credit.

Tenant Tip:

Review reconciliation statements carefully and consider hiring a professional to audit the charges if discrepancies arise.

Negotiating CAM Charges: What Tenants Should Know

  1. Cap on Increases

Ask for a cap on annual CAM increases to avoid unexpected spikes in costs.

  1. Exclusions

Negotiate exclusions for certain expenses, such as landlord office management costs or specific capital improvements that don’t benefit all tenants.

  1. Transparency

Request detailed breakdowns of CAM expenses in your lease agreement and during reconciliations. Transparency ensures you’re not paying for unwarranted costs.

 

Benefits of CAM Charges

While CAM charges may seem like an added expense, they offer tangible benefits:

  • A well-maintained property enhances the customer experience.
  • Shared costs are more affordable than individual maintenance for each tenant.
  • Regular upkeep increases property value, which benefits tenants in high-traffic locations.

Key Takeaways

  • CAM charges cover the maintenance and upkeep of shared spaces in a commercial property.
  • Tenants should understand how CAM is calculated, including their pro-rata share and included expenses.
  • Negotiating favorable CAM terms and auditing reconciliations can protect tenants from unexpected costs.

Need help navigating CAM charges or reviewing a commercial lease? Contact us today for expert advice to ensure your lease works for your business.

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