What Is a CAM Expense in a Commercial Lease?
Understand Common Area Maintenance (CAM) expenses in commercial leases. Gain insight into these shared operational costs impacting your tenancy.
Common Area Maintenance (CAM) charges are an important aspect of commercial real estate leases. They cover the costs associated with operating and maintaining shared spaces within a commercial property or complex. CAM fees are typically billed separately from the base rent, influencing a tenant’s overall occupancy costs. Understanding these expenses is important for businesses to accurately assess their financial commitments.
Understanding Common CAM Components
Common Area Maintenance expenses encompass a wide range of costs incurred in managing and maintaining areas used by all tenants. These shared spaces include lobbies, hallways, elevators, parking lots, and landscaping.
Maintenance and repairs constitute a significant portion of CAM, covering routine upkeep of shared facilities. This includes tasks such as landscaping, parking lot maintenance, and the cleaning of common areas. Upkeep of heating, ventilation, and air conditioning (HVAC) systems for shared spaces also falls under this category.
Utilities for common areas are also typically included in CAM charges. These cover electricity, water, and gas used in lobbies, hallways, restrooms, and for exterior lighting. Property insurance for the building’s common areas and liability insurance are additional components often incorporated into CAM.
Property taxes attributable to the common areas or the entire property are frequently passed through to tenants as part of CAM. Costs associated with building security systems or personnel for common areas are also common inclusions. Fees paid to property managers for overseeing these common areas are often part of the CAM calculation.
Calculating and Allocating CAM Charges
Landlords aggregate all common area maintenance costs over a specific period, typically on an annual basis, to determine the total CAM expense. This aggregated sum represents the overall cost of operating and maintaining the shared spaces. This calculation forms the foundation for how charges are distributed among tenants.
The primary method for allocating these costs among multiple tenants is based on their pro-rata share of the property’s total leasable square footage. For instance, if a tenant occupies 1,000 square feet in a 10,000-square-foot building, they would typically be responsible for 10% of the total CAM expenses. This ensures that each tenant contributes proportionally to the upkeep of the shared facilities.
Tenants often pay estimated CAM charges monthly alongside their base rent. At the end of the year, an annual reconciliation occurs where the actual CAM costs are compared to the estimated payments. This process determines if the tenant owes an additional amount or is due a refund based on the difference between the estimated and actual expenses.
CAM in Commercial Leases
A commercial lease agreement will contain a clause detailing the provisions for Common Area Maintenance expenses. This section outlines what is included in CAM, how it is calculated, and the tenant’s responsibilities. Understanding this clause is important for managing financial obligations.
Leases frequently include provisions allowing tenants to review or audit CAM statements. This helps ensure that the charges passed on by the landlord are accurate and align with the lease agreement, providing tenants with oversight.
Tenant protections, such as “CAM caps,” are sometimes negotiated into leases. These caps limit the annual increase in CAM charges, providing predictability for a tenant’s operating expenses. Additionally, leases may include specific exclusions, preventing landlords from passing on costs for structural repairs or major capital improvements that do not directly benefit tenants.
The handling of CAM differs between various lease types. In a “gross lease,” CAM expenses are typically included within the base rent, offering tenants a fixed occupancy cost. In contrast, CAM is most prominent in “net lease” structures, such as triple net (NNN) leases, where these charges are added on top of the base rent, making them a direct and separate expense for the tenant.