What Are CAM Costs and What Do They Include?

Common Area Maintenance (CAM) costs are a standard element within commercial real estate leases. These costs cover expenses for the upkeep and operation of spaces used by multiple tenants. Understanding these charges is fundamental for any entity leasing commercial property, as they form a significant part of the financial commitment beyond base rent.

Understanding Common Area Maintenance Costs

Common Area Maintenance, or CAM, refers to expenses for operating, maintaining, and repairing shared spaces within a commercial property. These areas are accessible and beneficial to all tenants in a building or complex, such as lobbies, hallways, elevators, parking lots, and landscaping. The purpose of CAM charges is to distribute the costs of keeping these shared facilities functional, safe, and appealing among all tenants. This helps preserve the property’s overall condition.

These costs are an additional payment made by tenants, separate from their base rent. CAM charges allow property owners to be reimbursed for expenses related to managing and maintaining the property. The exact scope of common areas and their associated maintenance costs is defined within each specific lease agreement.

Typical Inclusions in CAM Costs

The specific expenses categorized as CAM costs vary significantly based on the commercial lease agreement and property type. CAM charges encompass a wide array of expenses necessary for the upkeep and operation of shared facilities. These often include utilities for common areas, such as electricity, water, and gas used in shared lobbies or restrooms. Janitorial services for common areas, landscaping, and grounds maintenance are also routinely covered.

Further typical inclusions involve snow removal, security services, and the maintenance and repair of shared structural elements like roofs or foundations. Mechanical systems serving common areas, such as HVAC systems and elevators, also fall under CAM expenses. Property management fees and administrative expenses related to the common areas are frequently passed through to tenants. Some leases may also include property taxes and insurance premiums that apply to the common areas of the property.

How CAM Costs Are Calculated and Billed

A tenant’s share of CAM costs is most commonly determined using a pro-rata method, based on the tenant’s leased square footage relative to the total leasable square footage of the building. For example, if a business occupies 10,000 square feet in a 100,000-square-foot building, they would typically be responsible for 10% of the total CAM expenses. This calculation aims to fairly distribute costs based on the proportion of space each tenant utilizes.

CAM costs are usually estimated at the beginning of a calendar year and billed to tenants monthly, alongside their base rent. At the end of the year, CAM reconciliation occurs. During reconciliation, the landlord compares the estimated CAM payments collected from tenants against the actual common area maintenance costs incurred during the year. Any discrepancies result in an adjustment, meaning tenants either receive a credit for overpayment or are billed for any shortfall.

Some leases include “gross-up” clauses. These allow landlords to adjust variable CAM expenses to an amount that would be incurred if the building were fully occupied, typically 95% or 100%. This provision ensures that tenants pay a fair share for services like cleaning or HVAC, whose costs fluctuate with occupancy levels, preventing landlords from absorbing the variable expense shortfall during periods of low occupancy. Leases may also incorporate “caps” on CAM increases, which limit how much CAM charges can rise year-over-year, often expressed as a percentage ranging from 3% to 10% annually. These caps can be cumulative, carrying over unused portions, or non-cumulative, resetting each year.

Navigating CAM Provisions in Leases

Reviewing the CAM provisions within a commercial lease agreement is a fundamental step for any tenant. The lease document should explicitly define what expenses are included in CAM and what costs are excluded. Understanding the specific method for calculating the tenant’s pro-rata share is also essential, as this directly impacts the financial obligation.

Details regarding the billing cycle, such as whether CAM is paid monthly or quarterly, and the annual reconciliation process should be clearly outlined. Tenants should examine clauses related to caps on annual increases, understanding if the cap applies to all CAM expenses or if certain “uncontrollable” costs like property taxes and insurance are excluded. Many leases also include audit rights, which allow tenants to review the landlord’s financial records to verify the accuracy of CAM charges. These rights provide transparency and help ensure charges align with the lease.