Most commercial retail leases are triple net leases. This means the landlord passes through the Landlord’s expenses to maintain the common areas to the tenants on a pro-rata basis. These expenses generally include real estate taxes, property insurance and CAM. CAM is an acronym for “Common Area Maintenance.” It is often included in commercial leases in the provision dealing with Additional Rent, Common Area Expenses, Operating Expenses, Common Area Costs or some other similar term. It includes Landlord’s actual out of pocket costs of operating, maintaining, repairing, inspecting, lighting, protecting, managing and securing the common areas and maintaining the commercial building in which the Leased Premises are located.
A well-drafted lease will include provisions defining what the CAM expenses include, and a longer list of what it does not include. An important part of the lease negotiations is determining what will be included in CAM or the operating costs. The Landlord may try to include unreasonable expenses as CAM costs.
CAM expenses are allocated to tenants on a pro rata basis: The more square footage a tenant rents, the greater percentage of CAM expenses it must pay. CAM costs are paid by the Tenant to the Landlord on a monthly basis to cover the cost of maintaining the property.
How can a tenant make sure that CAM charges are reasonable? It is common to find administrative and management fees, capital costs for repair and replacement of structural items like roofs, lighting, plumbing, electrical wiring, parking lot overlays and replacement, and HVAC replacement for the common areas. A tenant can attempt to negotiate a cap on CAM increases yearly, a fixed fee of CAM charges (typically the cap and fixed fee will exclude uncontrollable items like snow removal and utilities), and exclusions to items that a landlord may pass through to the tenant (for example, exclusion of capital expenditures such as replacing the roof or complying with ADA laws), among others. Administrative fees may be charged, based on a percentage of the CAM fee rate, for operating and maintenance costs associated with non-common areas or salaries – things that are not typical common area expenses should be objected to. The tenant should also negotiate the right to examine the books and records of their landlord to determine if the CAM charges have been properly calculated.
Most commercial office, industrial and retail leases include CAM or operating expenses as a part of a tenant’s additional rent. No matter what a landlord calls CAM, if you are paying for maintenance, taxes, and insurance, you need to be aware of how your Landlord is calculating these fees and what you are paying for to make sure it is reasonable and typical for other similar buildings in the market.
This article may not be reproduced in any form without the permission of Holden Law Firm. © Copyright 2012 Holden Law Firm. All rights reserved.
