What Are Common Area Maintenance Charges (CAM)?

What Are CAM Charges?

Common area maintenance fees cover operating expenses for shared areas of the building you are leasing. These are paid by the tenant to the landlord so that the owner can recoup the costs associated with operating and maintaining the communal areas within a commercial building or campus.

These fees cover costs for things like landscaping, parking lot maintenance, and janitorial services for lobbies and bathrooms. They do not usually include tenant-specific costs such as supplemental HVAC for a server room.

Are CAM Fees Included in My Rent?

• In a triple net lease, the most common type of commercial lease, tenants are responsible for their calculated share of CAM charges on top of the base rent cost. For example, if a tenant rents 15% of the total area of a commercial building, they would also pay 15% of the total CAM charges.
• With a single or double net lease, the landlord typically absorbs some or majority of the CAM charges. For instance, in a double net lease, a retailer might only be expected to pay for a portion of the CAM charges related to their specific unit and shared customer parking area, but not for common areas like lobbies or gardens that they do not use.
• Lastly, a full service gross lease encompasses the CAM charges within a single, comprehensive rental payment. As an example, a professional firm in an office building would pay one lump sum every month, which already considers rent, CAM charges, and other operating expenses.

To look into these lease types further and understand exactly how they impact your financial obligations, refer to our guide on common types of commercial leases.

What is Included in CAM Charges?

What's included in a tenant’s CAM fees can vary from building to building and landlord to landlord, so it is important for tenants to carefully read their leases and understand what their CAM entails. Industrial and retail tenants will also see a very different list of CAM items due to the nature of their businesses and the buildings they typically occupy.

For office tenants, it is ordinary to see the following items included in CAM expenses:

• Lighting
• Water for irrigation, drinking, and restrooms
• Landscaping
• Parking lot maintenance
• Administrative fees
• Sidewalks
• Driveways
• Stormwater management
• Electric
• Janitorial services
• Management salaries and fees
• Sewage
• Window washing
• Stairwell maintenance

For industrial properties, the following items are typically included in CAM expenses:

• Common area lighting
• Water for irrigation
• Landscaping
• Parking lot maintenance
• Administrative fees

For retail properties, the following items are often included in CAM expenses:

• Common area lighting
• Water for irrigation
• Landscaping
• Parking lot maintenance
• Administrative fees
• Sidewalks
• Driveways
• Stormwater
• Utility facilities
• Loading docks
• Delivery areas

Administrative fees are a negotiated percentage of all costs of operating and maintaining a property.

How to Calculate Common Area Maintenance Charges

At the beginning of the year, the property manager will estimate the expected CAM expense as part of the building's annual budget. Each tenant will then be billed monthly for this as a part of their operating expenses.

The portion of the overall CAM expense that tenants are responsible for paying is determined by the percentage of square footage they occupy in the gross leasable area of the building.

This estimation is reconciled at the end of the year, and the tenant will either be billed for their portion of any overages or credited any excess paid.

Good property managers should be able to see any potential overages mid-year and will adjust the estimated CAM expenses for the rest of the year. This would raise a tenant’s monthly operating expenses, but will prevent the pain of writing an unforeseen, large check for a lump sum at the end of the year.

CAM Reconciliation

CAM reconciliation is the process of comparing estimated Common Area Maintenance (CAM) charges paid by tenants with the actual expenses incurred by the landlord throughout the year. This ensures that all maintenance costs are fairly distributed, with tenants either receiving a refund for overpayments or being billed for any shortfalls. Understanding CAM reconciliation is key to managing and budgeting for shared property costs effectively.

Legal Aspects and Regulations of CAM Charges

To mitigate potential disputes over CAM charges, both landlords and tenants should closely examine the lease terms for clear definitions, calculation methods, and CAM charge caps. Transparency is crucial, so landlords need to share detailed breakdowns of CAM fees, and actively clarify during CAM reconciliation processes. Fees should be justifiable, reasonable, and reflect the services provided for common area maintenance.

Should disputes arise, landlords should swiftly address them, ready to negotiate and tap into formal methods like mediation or arbitration if needed. Detailed record-keeping is integral, and records should be readily available for tenant review. Yet, given regulatory variations across regions, consulting an attorney or legal professional is recommended to ensure lease alignment with local laws and guidelines.

Can CAM Expenses Be Negotiated?

Since CAM expenses are a reimbursement of costs incurred by the landlord throughout the year, they usually aren’t negotiated. However, understanding these costs and their impact on your cap rate can be crucial from an investor's perspective. For instance, efficiently managing CAM expenses can lower operational costs and therefore increase the value of the property, leading to a more favorable cap rate. Regular commercial real estate (CRE) appraisals can further help investors understand the worth of their property, factors affecting its value, and how to enhance its profitability.

CAM expenses often include many indirect costs that are not easily identifiable, so it is important to ask the landlord to narrowly define the exact expenses included in your lease. Some expenses, such as security costs, utilities, and snow removal expenses for instance, are considered “uncontrollable.”

A tenant rep broker may be able to help tenants negotiate lease terms to limit the percentage that CAM expenses can increase. These CAM expense caps should be negotiated into initial lease terms. The landlord may try to negotiate a floor for annual CAM expense increases.

Practical Tips for Tenants and Landlords

For Tenants

• Read your lease thoroughly: It is important to fully understand your lease agreement, which outlines not only your responsibilities regarding CAM charges but also other important aspects like tenant improvement allowance. If there is anything unclear, consult with a legal professional.
• Negotiate your lease: Certain aspects of the lease are negotiable, including CAM charges. Seek the expertise of a tenant representative to effectively negotiate in your favor.
• Regularly review CAM charges: Ask for yearly breakdowns of CAM costs from your landlord to ensure all expenses are justifiable and accurate. This can help you anticipate and budget for future charges.

For Landlords

• Maintain clear communication: Transparency goes a long way in maintaining a positive relationship with your tenants. Provide a detailed breakdown of CAM fees and engage in open discussions about any changes or increases.
• Regular property maintenance: Regularly inspect and maintain your property to avoid larger unexpected expenses. Unforeseen costs could escalate CAM costs causing disputes with tenants.
• Consult with a legal professional: Commercial leases can be complex. Consult with a legal professional to ensure the legality of your leases and reduce the risk of potential disputes.

Remember, whether you're a tenant or a landlord, understanding, and effectively managing CAM charges can lead to better leasing outcomes, minimized disputes, and optimal commercial property operations.

This article was updated on 12/12/2024