Categories
Leases Property Management

Common Area Maintenance (CAM) Charges

Aside from the base rent, common area maintenance (CAM) charges are some of the largest additional leasing costs that tenants may see. Here, we give an overview of what CAM charges are and ways to manage them.

What are Common Area Maintenance (CAM) Charges?

In a triple net (NNN) lease, tenants are billed CAM charges for maintenance fees to their property’s common areas. This is an additional fee on top of the base rent you’ve already agreed to pay.

What Can Be Included in CAM?

CAM charges could be overgeneralized by looking at all the features in your building that benefit your rented space. Chances are most of the features you think about can be applied to CAM.

We can break this down into inside and outside features of a commercial property. On the outside of the building, you can assume non-structural repair and maintenance of the roof, landscape, and parking surfaces to be covered by CAM. That includes snow removal, landscape, lighting, and signs. On the inside of the commercial property there’s plumbing, electrical, and cleaning services, which could also include all of the cleaning supplies.

What Are Capital Expenditures and Why Do They Matter?

When you’re leasing a property, you don’t own it so there’s no advantage in increasing the value of the property. However, there’s always a chance that a landlord will try to add these into CAM charges.

This is when understanding what benefits your business is key to negotiations. It’s even more important to have someone you trust that knows your business to help determine what – if any – capital expenditures are covered in CAM charges. The reason why there’s conflict surrounding these improvements is because of the nature of the capital expenditures.

There are typically three categories of capital expenditures: capital improvements, capital replacements, and capital repairs. As you read through these, you’ll start to understand why most of these should stay out of CAM fees.

Capital Improvements, Capital Replacements, and Capital Repairs

These can be defined as additions or improvements that increase the value of the commercial property. Capital improvements can include everything from new structures, equipment, or other improvements which most tenants will find objectionable. Capital replacements are investments that upgrade depreciated assets, and capital repairs are maintenance to keep capital assets in a working condition.

All three of these capital expenditures can be seen as investments into the commercial property, but there are times when they’re included into CAM charges. For example, if there was an upgrade to the HVAC system, or electrical system that would lower the tenant’s utility charges, then there would be some benefit to the tenant. Even with that example, prospective tenants should make sure those terms are specifically outlined in their contract.

Remember, we’re just scratching the surface with these topics and if you’re searching for a new lease, make sure you work with a tenant representative to protect yourself from potential risks and liabilities.

How CAM Charges Add Up

Usually your landlord of the commercial property will give you a prorated fee based on the square footage of your rented space. Accurately estimating yearly CAM charges can get complicated because it’s difficult to predict cash flow. Depending on your commercial property, your landlord may include a cap or floor on CAM charges.

CAM Caps and Floors

Caps and floors are included in some leases to limit CAM charges to a fixed value. This can help both the landlord and the tenant as cash flow varies from month-to-month and year-to-year.

A cap on CAM fees would limit the amount paid by the tenant to a fixed price that can rise each year. CAM caps increases are percentages that can be cumulative or compounded, and calculated year-over-base or year-over-year.

When CAM charges are less than the cap, then a landlord may use a floor CAM. These CAM charges will budget a minimum increase in the fees, which may slow down any major increases in the future.

CAM Audits

Since common area maintenance is under the control of the landlord, it’s important for tenants to ensure they have a right to audit the expenses to ensure they are fair and equitable. In addition to reviewing the annual CAM reconciliation report that the landlord will send, tenants should also ensure that their lease provides for the ability to obtain copies of invoices and review for accuracy.

Still Have Questions?

Making sure that tenants are comfortable with all terms of their lease is one of our highest priorities. Contact one of our agents at (402) 421-7474 with any CAM questions you may have.

Categories
Leases

Commercial Property Lease Types

You’ve found your dream space for your business, and you’re ready to sign on the dotted line. But before you do that, take a second to make sure you know what you’re getting into.

There’s several types of leases, all with varying degrees of risk for the tenant. Here’s the basics of each option to help ensure you don’t get stuck with unexpected costs.

Let’s start at the riskier end of the spectrum.

Absolute Net Lease

This type of lease has the most risk for a tenant because the tenant is responsible for all expenses and repairs related to the building. So, you’ll pay all maintenance, repairs, utilities, real estate taxes, and insurance costs in addition to base rent.

Triple Net Lease

In this lease, you’ll pay most maintenance, repairs, utilities, real estate taxes, and insurance in addition to base rent. However, the landlord usually pays for structural repairs and capital improvements to the property, making it a slightly less riskier lease to enter into.

Modified Gross Lease

Here, you’ll pay some — but not all — of one or more operating expense items (maintenance, repairs, utilities, real estate taxes, and insurance). For example, under this lease, the building’s heating expense might be included in the base rent rather than being charged separately on a prorated basis. The specific expenses paid separately can vary extensively, so it’s important to know exactly what’s included in the base rent with this type of lease. This type of agreement is sometimes called a modified net or base plus lease.

Gross/Full-Service Lease

In a gross or full-service lease the rent is all-inclusive. Maintenance, repairs, janitorial services, utilities, real estate taxes, and insurance are included in the base rent. This type of lease is easy for the tenant, allowing you to forecast expenses without worrying about unexpected charges. You can concentrate on growing your business while the landlord assumes all responsibility for the building.

In Conclusion

That’s the basics of each lease. But, of course, it doesn’t hurt to have an expert to help you negotiate the details, and that’s where Guiderock Commercial Realty LLC comes in. Speak to an expert at (402) 421-7474.

Categories
Leases Sales

A Quick Guide to Beginning Your Property Search

Renting commercial space can be a huge liability. Whether your business is large or small, the terms of your lease can hinder your success. As exciting as it can be to grow your business and search for commercial space, it’s important to take your time and understand each step of the process before you move forward.

Step 1: Determine Commercial Space Needs

Two common mistakes we see are businesses either paying too much for rent or having a space that’s the wrong size. That’s why we start by analyzing your business needs and budget. Each business has a different set of requirements for its commercial space, depending on the number of employees, production needs, and a wide variety of other needs. A restaurant, for example, wouldn’t need multiple private offices, just like a law firm wouldn’t need a large kitchen.

CREATE A LIST OF SPACE NEEDS FOR YOUR BUSINESS

First, write down your space needs. It’s a great way to start figuring out what square footage you’ll need. Make sure you take into account the space needed for storage, private offices, production, and future growth. If you’re forecasting growth in production and employees, it makes sense to calculate that in as well so you don’t grow out of your new location within the first 6 months. Think about how you use space as well; do you need a conference room in your space for daily meetings, or would it work to have a shared space elsewhere in the building?

CALCULATE YOUR COMMERCIAL SPACE SIZE

Once your list of commercial space needs is completed, you can find an office space calculator to give you an estimate of what size of space is needed. Add up your square footage and use it to start your search for your new commercial space. Other types of spaces may require different methods to determine how much space is needed; your tenant representative will be able to help you through this process.

SET A BUDGET

Researching your budget will narrow down the listings for your business and give you realistic expectations on what you’ll pay. You probably already have a rent budget in mind, but how realistic is that price based on your list of needs? You can search for commercial properties that fit your square footage needs to see if that price matches your budget. Make sure you check different locations around town as some prices will fluctuate based on traffic flow, location, and demographics. Researching a budget also allows you to reevaluate your list of space needs where you may find some room to cut down on square footage.

Step 2: View Property Listings

Once you’ve researched your commercial space needs and set a budget for rent, it’s time to start looking for properties that match your needs. Searching online for commercial space can be frustrating and eats away at your time. This is where it makes sense to talk to a commercial real estate agent or tenant representative who is connected within the local market. They’re typically connected to private networks that have commercial listings not open to the public. Tenant representatives also bring a lot of experience and resources to the search so they can lead you in a better direction after looking at business needs and budget. Even if you’ve found a commercial property, there’s still the possibility that the lease terms may not fit your business needs.

Step 3: Understanding Terms & Negotiating

Since finding the right commercial space can be frustrating, it can seem like a relief to start talking to the landlord about leasing. Make sure you take your time to read over and understand the terms of the commercial lease before signing anything. Even if it’s the only commercial space that fits your budget and size, you’ll still want to go over all the terms. Your tenant representative and your attorney will review all of the terms with you and make sure you understand your responsibilities.

LEASE AGREEMENTS & CONTRACTS

Chances are the lease will be more appealing if you lock it in for multiple years, which makes it extremely important to know the lease agreements and contract details. There could be future scenarios that cause you to break the lease, which can be very costly. Having a commercial real estate agent and an attorney on your team adds another resource to explain parts of the lease you don’t understand. They can also point out which parts of the lease could potentially affect your business in the future. Leasing commercial space is a significant commitment, and if you don’t understand the terms then you may have negative consequences later.

NEGOTIATING POWER

It can be tough to negotiate commercial space terms and price, but an experienced tenant representative can help find a way to leverage your business to strike a deal. There are different negotiating techniquesthat can give the landlord an upper hand, and utilizing a tenant representative to do your negotiating evens the playing field.

Step 4: Start Moving & Feeling Confident

Even after you’ve signed a lease, it’s nice having a resource in case something comes up in the future. That’s why building a strong relationship with your tenant representative makes sense, and as a bonus, you can feel confident moving forward.

READY TO TALK WITH A TENANT REPRESENTATIVE?

We listen to our clients to evaluate and analyze what type of commercial space would fit their specific needs. Contact one of our tenant representatives at (402) 421-7474 to see how we can help you with your next lease.