When leasing commercial space, many people don’t realize you pay for more than just the actual square footage you will occupy. In many commercial leases, and particularly in retail and industrial space leases, extra fees are often referred to as “Common Area Maintenance” (CAM) fees. These CAM fees serve to offset the landlord’s cost of the Common Area shared by the tenants.
What CAM fees cover, and more importantly what tenants pay for, varies greatly from lease to lease. CAM fees can escalate at a different rate than the monthly lease rate because they tend to be more variable. Some of the fees may even cover services that you as a tenant are not utilizing. As such, the CAM fees may be negotiable. You should never sign a lease without understanding what CAM fees cover in your unique commercial lease. Our real estate lawyers represent many commercial tenants in these negotiations.
In some leases, the CAM fees are clearly defined and outline the specific expenses being covered. Generally speaking, CAM fees include water, gas, electric, HVAC, landscaping and parking lot maintenance. However, some CAM fees may include certain administrative fees and general overhead expenses unrelated to the property and the common area. CAM fees can include advertising, signage, property renovations, salaries or other costs associated with on-site security personnel, permits, taxes, insurance, other costs of maintaining separate leasing office spaces either on or off-site, and even any legal costs. Know what’s in your lease before you sign. If CAM fees are not explained thoroughly in a lease, potential tenants should be sure to specifically ask for CAM fees to be identified including a clear list of what is being paid for in the lease.
It is also important to understand how the Landlord is prorating the CAM fee across the various tenants. Some divide the cost based on square footage while others prorate it based on gross revenue or the number of monthly customers. Some Leases will prorate the CAM fee against all tenants evenly regardless of square footage or gross revenue. This means that a small 1200 square foot store may have the same CAM fee bill as the 20,000 square foot anchor store. Be sure to check to see how the CAM fee is prorated.
In some instances, negotiating with the landlord may get the landlord to give you a Fixed CAM Fee or even a Capped CAM Fee. A Fixed CAM Fee sets the CAM fee at the same rate no matter what the actual expenses are for the landlord. Some of our clients have used the fixed rate to help with budgeting monthly expenses. A Capped CAM Fee sets the maximum CAM charges for a given period, but does not set a minimum. A Capped CAM Fee gives the tenant the benefit of the minimum CAM costs along with the protection from any upside swing in expenses. Landlords are less likely to give a Capped CAM as this may require the landlord to cover more costs with the protection a Fix CAM Fee provides.
The most important thing to remember about CAM fees is that just like the other terms of the lease, the amount of the CAM fee may be negotiable. If you are a commercial tenant or looking to lease commercial space in the near future, contact our office to discuss your options with a real estate attorney.