What Is CAM Income and How Is It Calculated?

Commercial real estate leases often involve various financial components beyond base rent. Among these, Common Area Maintenance (CAM) income represents a significant revenue stream for landlords, directly offsetting the costs associated with operating and maintaining shared spaces within a property. For tenants, CAM charges are an additional expense that covers their share of these collective property upkeep costs. This arrangement ensures that the landlord can manage the property effectively while tenants contribute to the maintenance of areas they mutually benefit from.

Understanding Common Area Maintenance

Common Area Maintenance (CAM) refers to the expenses for the upkeep and operation of areas within a commercial property used by all tenants. These charges are a standard part of many commercial lease agreements, ensuring the property remains functional, clean, and appealing. CAM charges allow landlords to recover costs that benefit the entire tenant community, protecting property owners from fluctuating maintenance expenses.

Common areas typically include spaces like building lobbies, hallways, shared restrooms, and elevators within an office building. For retail centers or industrial parks, common areas extend to parking lots, landscaping, sidewalks, and shared utility spaces. Tenants share the financial responsibility for these areas, benefiting directly from their access and maintenance.

Typical Inclusions in CAM

CAM charges encompass a wide range of expenses necessary for the operation and maintenance of shared spaces. These typically include:

Utilities specific to common areas, such as lighting for lobbies and parking lots, and HVAC for shared corridors.
Cleaning and janitorial services for common restrooms and hallways.
Landscaping and grounds maintenance, including the care of green spaces and irrigation.
Parking lot expenses, such as resurfacing, striping, and snow removal.
Security services or systems for the overall building or property.
Maintenance and repairs of the building’s structural elements (e.g., roof, foundation, exterior walls) and common building systems (e.g., elevators, plumbing).
Property management fees attributable to common area oversight and property insurance for the building’s common elements.

Calculating and Recovering CAM Costs

Landlords typically calculate and recover CAM costs from tenants using established methodologies outlined in lease agreements. The most common approach involves determining each tenant’s pro-rata share, which is their proportional percentage of the total CAM expenses based on their leased square footage relative to the building’s total leasable area. For instance, if a tenant occupies 10% of a building’s leasable space, they would generally be responsible for 10% of the total CAM costs.

At the beginning of a fiscal year, landlords usually estimate the total annual CAM expenses based on historical data and anticipated costs. Tenants then pay their pro-rata share of these estimated costs, often collected monthly alongside their base rent. This system provides predictable monthly payments for both parties.

Year-end CAM reconciliation is a key part of this process. During reconciliation, the landlord compares actual CAM expenses incurred against estimated amounts collected from tenants. If actual expenses were lower, tenants may receive a credit or refund. If actual costs exceeded estimates, tenants are typically billed for the difference, ensuring full recovery of common area maintenance costs.

Many commercial leases incorporate “gross-up” clauses, particularly for buildings not fully occupied. These clauses allow landlords to adjust variable CAM expenses, such as utilities or janitorial services, to reflect what they would have been if the building were 95% to 100% occupied. This adjustment prevents tenants from bearing a disproportionately higher share of variable costs when a building has vacancies, ensuring the landlord can cover these operating expenses despite under-occupancy.