What Is a Monthly CAM Charge in a Commercial Lease?

Common Area Maintenance (CAM) charges are a significant financial component of commercial real estate leases, extending beyond the base rent. These charges cover the costs of operating and maintaining shared spaces and common facilities within a commercial property. Understanding CAM charges is important for tenants, as they directly impact total occupancy costs and can vary considerably based on the lease agreement.

What Common Area Maintenance (CAM) Charges Entail

CAM charges encompass a range of expenses for the upkeep and operation of areas shared by multiple tenants within a commercial property. These common areas include lobbies, hallways, elevators, parking lots, and landscaping. Specific costs in CAM fees are defined within each lease agreement, covering routine maintenance and repairs.

Maintenance and repair expenses involve the general upkeep of the property’s shared infrastructure. This includes servicing heating, ventilation, and air conditioning (HVAC) systems, plumbing, and electrical systems in common areas. Landscaping services, snow removal, and parking lot maintenance, such as resurfacing or striping, are also passed through as CAM.

Utilities for common areas are another category of CAM charges. These cover electricity for lighting in lobbies and parking garages, water for irrigation and restrooms, and heating or cooling for shared spaces. Janitorial services for common areas, including cleaning lobbies, restrooms, and hallways, are also included.

Security services (personnel or alarm systems) are CAM expenses, as are property management fees. Property insurance premiums and real estate taxes attributable to common areas are frequently part of CAM, though sometimes billed separately. Capital expenditures (major structural repairs or upgrades) may also be included, though leases often distinguish between recoverable and non-recoverable capital costs.

How CAM Charges are Calculated and Billed

A tenant’s share of CAM expenses typically relies on a pro-rata methodology. This means each tenant pays a percentage of total CAM costs based on the square footage they lease relative to the building’s total leasable area. For instance, a tenant occupying 10,000 square feet in a 100,000-square-foot building is responsible for 10% of total CAM charges.

Landlords often estimate CAM charges annually, billing tenants monthly alongside their base rent. At year-end, a CAM reconciliation process compares estimated payments against actual expenses. If actual costs were lower than estimated, the tenant may receive a credit or refund; conversely, if actual costs exceeded estimates, the tenant owes an additional payment.

Lease structures influence how CAM charges are handled. In a Triple Net (NNN) lease, tenants assume responsibility for their pro-rata share of property taxes, insurance, and CAM expenses in addition to base rent. A Full Service Gross lease bundles most operating expenses, including CAM, into a single, higher base rent, with the landlord covering these costs. Modified Gross leases are a hybrid, where tenants pay base rent plus a share of certain operating expenses, often including CAM.

Lease agreements incorporate mechanisms to limit a tenant’s exposure to increasing operating expenses. A “Base Year” clause sets a baseline for CAM expenses based on costs incurred during the first year of the lease. In subsequent years, the tenant only pays for increases in CAM above this base year amount. Similarly, an “Operating Stop” functions like a base year, establishing a fixed amount of operating expenses per square foot that the landlord covers, with the tenant paying for any costs exceeding this stop. Leases can also include “caps” on CAM increases, limiting the percentage by which charges can rise year-over-year, typically ranging from 3% to 10% annually.

Key Considerations for Tenants

Thoroughly reviewing the CAM clause in a commercial lease agreement before signing is important for tenants. This review clarifies how “common areas” are defined, ensuring the tenant understands which shared spaces contribute to their charges. The lease document specifies the methodology for calculating a tenant’s pro-rata share and details the reconciliation process.

Tenants should look for specific exclusions from CAM charges within the lease. Exclusions include costs related to major structural repairs or upgrades that significantly extend the building’s life (capital expenditures), unless these improvements directly reduce operating expenses. Landlord-specific marketing costs or expenses related to spaces occupied solely by other tenants should also be excluded from a tenant’s CAM.

Commercial leases provide tenants with audit rights, allowing them to review the landlord’s calculations and supporting documentation for CAM expenses. This right enables tenants to verify the accuracy of charges and identify discrepancies. A common timeframe for exercising audit rights is 30 to 90 days following receipt of the annual CAM reconciliation statement.

Certain aspects of CAM, such as the inclusion or exclusion of specific expenses, the application of caps on increases, or the terms of audit rights, are points of negotiation. Tenants can seek to limit annual CAM increases or negotiate a clearer definition of what constitutes a recoverable expense. Requesting detailed breakdowns of CAM expenses from the landlord promotes transparency and helps tenants budget effectively.