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.
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.