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DECODING CAM CHARGES IN COMMERCIAL LEASES

In the world of commercial leases, understanding the concept of CAM - short for "Common Area Maintenance," is essential. CAM charges refer to the costs a commercial property owner passes onto tenants in return for maintaining shared spaces. These shared spaces, when well-kept and attractive, can offer a competitive advantage to tenants. Hence, landlords usually distribute common area maintenance costs among tenants. In a nutshell, CAM charges are the costs billed to tenants for the landlord's maintenance of common areas, also known as expense recoveries. Different asset types might have varying line items under common area maintenance.


Types of Leases and CAM Fees

Not all commercial leases treat common area maintenance equally. Some leases might not pass on any costs to the tenants, while others might pass on all costs. The two primary types of leases in this context are the Full-service gross lease and the Net lease.

A full-service gross lease involves a fixed monthly payment that usually includes all common area maintenance, utilities, taxes, and other operating costs. In this type of lease, landlords bear the risk of unpredictable costs, and thus, the rent is typically higher than that of a net lease. On the other hand, in a net lease, tenants pay for CAM, utilities, taxes, and other property-related costs apart from their monthly rent. Consequently, the monthly lease payment is usually less than that of a full-service gross lease. The billing of common area maintenance usually follows one of two methods: Fixed fee or Tenant's percentage of the total gross leasable area.


Understanding Fixed Fee and Percentage-Based CAM Charges

The concept of fixed fee CAM charges is straightforward. An annual CAM charge is incorporated into the lease, and tenants are obliged to pay it alongside their rent. This practice is common in small properties with individual owners.

The calculation gets a bit complex when CAM is charged as a percentage of gross leasable area. At the beginning of the year, your property manager will estimate annual CAM costs. These costs are then divided among the tenants in the building based on their gross leased area. For instance, if you lease a 1,000 SF retail block in a 5,000 SF building, you would be accountable for 20% of the CAM costs. Your share of the annual CAM estimation is divided by 12 and added to your monthly rent. At the end of the year, a CAM reconciliation is carried out by your property manager.


The Process of CAM Reconciliation

A CAM reconciliation is an annual calculation that compares the property's actual CAM costs and tenant receipts. If the actual CAM costs are less than tenant receipts, the difference is distributed to tenants. However, if the CAM costs exceed the receipts, tenants owe the difference to the landlord.


Some leases might require a CAM reconciliation to include all common area maintenance invoices for the tenant's verification. However, property owners might prefer not to include such stringent stipulations. CAM reconciliations often draw complaints from property managers due to the complexity different lease provisions can add to the calculation.

Reach out to Serrone Hunter today to learn more. 


Lou Serrone (913) 219-9924
Mandi Hunter (913) 908-7222

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