How to Calculate CAM Charges Per Square Foot

Common Area Maintenance (CAM) charges are a standard component of commercial real estate leases, representing a tenant’s share of the costs associated with operating and maintaining shared spaces within a commercial property. These charges allow landlords to recover expenses incurred for the benefit of all tenants, ensuring the property remains functional, attractive, and well-maintained. Understanding how these charges are calculated is important for both tenants, who need to budget accurately, and property managers, who must ensure fair and transparent billing.

Understanding CAM Charges

CAM charges encompass the expenses necessary to operate and maintain the common areas of a commercial property, which are spaces used by all tenants. These shared areas can include lobbies, hallways, parking lots, landscaping, and exterior building elements. The purpose of collecting CAM charges is to distribute these collective costs equitably among all occupants.

Common expenses included in CAM charges. They include landscaping maintenance, parking area maintenance, and snow removal services. Property taxes assessed on the entire commercial building are also a significant component, alongside building insurance premiums that protect the structure and common liabilities.

Other inclusions are utilities for common areas, such as electricity for exterior lighting or water for shared restrooms. Security services, including personnel or surveillance systems, and janitorial services for cleaning shared lobbies and hallways are also frequently incorporated. Additionally, administrative fees for managing these common area services are sometimes allocated as part of the CAM expenses.

Determining Your Pro Rata Share

A tenant’s pro rata share establishes their portion of the total CAM expenses for a commercial property. This share is determined by comparing the tenant’s leased space to the total rentable area of the entire building. The lease agreement outlines the method for calculating this percentage, which dictates how much of the collective property costs each tenant is responsible for.

The calculation of pro rata share relies on “rentable square footage” rather than “usable square footage.” Usable square footage refers to the actual space within a tenant’s leased premises, defined by the interior walls. Rentable square footage, however, includes the usable space plus a proportional share of the building’s common areas, such as lobbies, hallways, and shared restrooms.

Landlords use rentable square footage for CAM calculations because it fairly allocates common area costs based on a tenant’s overall footprint and benefit from shared spaces. Tenants should carefully review their lease agreement to understand how their rentable square footage is defined and measured. This clarity ensures transparency in the pro rata share calculation and helps tenants verify the accuracy of their CAM obligations.

Performing the CAM Calculation

Calculating CAM charges per square foot involves a two-step process once the total annual CAM expenses and the building’s total rentable square footage are known. The first step determines a uniform CAM rate for the entire property. This rate is derived by dividing the total annual common area maintenance expenses by the total rentable square footage of the commercial building.

For instance, if a building incurs $100,000 in CAM expenses and has a rentable area of 20,000 square feet, the CAM rate per square foot would be $5.00. This calculation provides a standardized cost per square foot that applies to every leased space within the property. This rate serves as the basis for determining each tenant’s specific charge.

The second step applies this calculated CAM rate to an individual tenant’s leased space to determine their annual CAM charge. This is achieved by multiplying the CAM rate per square foot by the tenant’s rentable square footage. For example, if a tenant leases 2,000 rentable square feet in the building with a $5.00 CAM rate, their annual CAM charge would be $10,000. This annual amount is typically divided into twelve equal monthly payments, paid alongside the base rent.

CAM Charge Reconciliation

CAM charge reconciliation is an annual process in which landlords compare the estimated CAM payments collected from tenants throughout the year against the actual expenses incurred for common area maintenance. This adjustment is necessary because tenants typically pay estimated CAM charges monthly based on a landlord’s annual budget. The reconciliation ensures that tenants ultimately pay only for the true costs of common area maintenance.

The reconciliation process occurs within 60 to 90 days following the close of the landlord’s fiscal year. Then, the landlord compiles all actual common area expenses and compares them to the total estimated payments received from all tenants. This comparison reveals any discrepancies between the projections and the real costs.

If estimated payments exceeded actual CAM expenses, the landlord will issue a credit or refund to the tenant for the overpayment. Conversely, if the actual expenses were higher than the collected estimates, the tenant will be required to pay the difference as an additional charge. A detailed reconciliation statement is provided to tenants, itemizing the actual expenses and demonstrating how the final adjustment was determined, offering transparency in the financial accounting.