Signing a commercial lease is always exciting—and of course, a little nerve-wracking. On the one hand, a new space means new possibilities. On the other, a commercial lease is a legally binding document, and there are many items a tenant should consider before signing on the dotted line. While you may be eager to get into a new space quickly, your new venture can become unnecessarily expensive if you don’t understand the costs and restrictions that are in your lease and that includes common area maintenance charges. But what exactly are CAM charges?
Common area maintenance is one of the three main components that make up operating expenses, the other two being insurance and property taxes. This, in turn, makes CAM part of what is called a Triple Net (NNN) Lease.
Common Area Maintenance (CAM) expenses are fees paid by tenants to landlords to help cover costs associated with overhead and operating expenses for common areas. Common areas are spaces used for or benefited by all tenants include, but are not limited to, hallways, elevators, parking lots, public bathrooms and building security. CAM expenses are usually defined in the lease to clear up any ambiguity as to what they entail. However, if you don’t have a clear understanding of these expenses in your lease, ask the landlord to clarify so you know exactly what you’re signing up for.
Now let’s take a look at seven common area maintenance (CAM) items to consider when negotiating a commercial lease.
- Capital Improvements – From time to time, every property needs updates. Sometimes these may be cosmetic improvements. At other times, landlords may undertake major projects involving substantial improvements to a property to improve its value or extend its life. If the landlord includes this expense in CAM, then you may be expected to pay your portion of any capital improvement projects. However, some tenants will argue that they shouldn’t need to pay for projects that won’t directly benefit them.
Examples of capital improvements might be a new HVAC system, a roof upgrade, or accessibility improvements. In the end, it is very important to get as much clarity as possible from the landlord about capital improvements.
- Janitorial Services – Commercial tenants expect that common areas of properties will be cleaned regularly. On the whole, commercial property owners either have their own janitorial staff of contract with a janitorial company. As such, each tenant also must pay a portion of the janitorial contract fees. This fee may also include the cost of janitorial supplies.
- Security Services – Since having a secure facility is crucial to safeguarding businesses and their equipment, security services are a part of CAM. Alarms systems, on-site security personnel, overnight security, along with fire and smoke detection systems are all a part of property security. Since the tenants of a commercial property share these services, they usually also share the expense.
- Systems – Use of lighting, plumbing, electrical wiring, HVAC, and other systems within common areas like lobbies, restrooms, and elevators are shared by all tenants. Thus, these costs are also shared by tenants. When reviewing your lease, ask what your share of these costs will be.
- Management Fees – Managing commercial properties requires a great deal of time and effort. So instead of managing commercial properties themselves, many landlords hire property management companies.
These companies handle a wide range of services which may include leasing, building operations, tenant communications, build-out management, facility maintenance, stakeholder reporting, financial services, and other services that directly impact tenants. If your landlord uses a property management service, you and the rest of the tenants will probably share the cost.
- Parking Areas – Regardless of the commercial building, tenants usually share the costs for parking areas. The property might only have a surface parking lot, or it could have a parking garage. Either way, the costs associated with parking lot and parking garage maintenance, repaving projects, and parking staff are usually included in CAM fees.
- Administrative & Maintenance Fees – Although many landlords may outline the CAM fees in detail, some may only list Administrative Fees or Maintenance Fees. If the lease doesn’t clearly spell out the specific charges, ask the landlord to elaborate.
Your CAM fees could be paying for things like permits, any legal costs, advertising, signage, or general expenses. You should not be paying for expenses like the owner’s income tax filing fees, costs associated with rent collection, or other services that benefit the owner(s).
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