Common Area Maintenance (CAM) in all its mystery
First, let’s start with trying to define the common area. What exactly is it? Common area can be: lobbies, hallways, elevators, bathrooms, sidewalks, parking lots, landscaping, roof, and so on - areas of the building/property that enhance the feel of the space, as well as the practical use of getting tenants to various locations.
Who pays for the upkeep and improvements of this area? The tenant. Landlords will pass costs associated with CAM along to tenants through their rental structure. In a full-service lease, the tenant will pay overages of CAM charges based on the base year of the lease. For instance, a tenant signing a lease right now will have a base year of 2018 and if the Landlord's expenses increase in 2019 the tenant would be responsible for their pro-rata share of the difference. If the Landlord's expenses were $100,000 in 2018 and they increased to $120,000 in 2019, then the difference would be $20,000. That $20,000 would be spread among all the tenants based on how much space they occupy in the building. So, if the tenant occupied 50% of the building, they would be responsible for paying $10,000.
With net leases it will vary, which is why Landlords will try and define CAM as broadly as possible. For instance, in a triple net lease the tenant is responsible for all the CAM charges. 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 by 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?
It is important to understand the costs associated with CAM before entering into a lease. Having a conversation with your broker will help you understand what you'll be charged for and allow you to appropriately evaluate the options for your next space.