Common Area Maintenance (CAM) in all its mystery.
First, let’s start with trying to define the common area. What is Common Area Maintenance? Common Areas can be lobbies, hallways, elevators, bathrooms, sidewalks, parking lots, landscaping, rooftop decks, shared amenities, and so on. These areas within a building enhance the feel or usefulness of a space. Areas can be practical, like an elevator or shared restroom. They can also be amenities, like a shared gym facility. CAM is cost of the upkeep of those spaces in a building that are shared by all the tenants,
Who pays for the upkeep and improvements of these areas? The tenant! Landlords charge tenants for all costs associated with CAM through their rental structure.
Full Service Lease
That means, in a full-service lease, the tenant will pay overages of CAM charges based on the base year of the lease. For example, a tenant signing a lease right now will have a base year of 2019. If the Landlord’s expenses increase in 2020, the tenant is responsible for their pro-rata share of the difference. If the Landlord’s expenses are $100,000 in 2019 and they increase to $120,000 in 2020, then the difference is $20,000. That $20,000 is divided among all the tenants based on how much space they occupy in the building. Therefore, if the tenant occupies 50% of the building, they are responsible for paying $10,000.
During lease negotiations, Landlords will work to define CAM as broadly as possible. As a result, Common Area Maintenance costs to a tenant will vary based on different net leases. For instance, a tenant pays 100% of the CAM charges in a triple net lease. In other net leases, the tenant may only pay for electric.
Because of these costs, CAM is an important part of evaluating lease options. Some good questions to ask are:
- What is the common area factor?
- Will the building be undergoing any renovations/improvements during the time of my lease? Can a cap be placed on the year-to-year escalations?
- Can a fixed CAM fee be arranged?
- Will the Landlord provide documentation to verify charges?
- Have tenants been credited or refunded for over paying CAM charges?
Understanding the costs associated with CAM before entering into a lease is important. In order to understand what you’ll be charged for, talk with your broker. You will then have all the tools you need to appropriately evaluate the options for your next space.