Before entering into a new commercial real estate lease agreement, it is important to have an understanding of CAM charges, if they apply to your loan and how these charges are assessed. CAM stands for common area maintenance and it is a fee the property managers pass on to tenants to help cover costs related to overhead and operating expenses for common areas. Common areas are those accessible to all tenants including hallways, elevators, parking lots, lobbies, public bathrooms and building security. CAM is negotiated in the lease agreement and the charges may vary depending on the market and the specific terms agreed to by the property manager and tenant.
CAM charges apply to a triple net lease (NNN), where the tenant is most often responsible to pay property tax, building insurance and CAM charges. At the beginning of the year, the property manager puts together an annual budget that includes an estimate of common area maintenance expenses for the entire property. After an estimate is established, each tenant is assessed CAM charges based on the square footage of space they occupy in relation to the total leasable square footage of the building. The total expense is calculated into monthly operating expense and paid incrementally by the tenant over the course of the year. During the year end process, the property manager performs a reconciliation of the actual CAM expenses with the estimated cost. If actual CAM expenses are less than the estimate, the tenant is issued a credit for difference. If the actual expenses exceed the estimated CAM, the tenant will be responsible for paying the difference.
Even though CAM costs can vary based on the terms of the lease, the following list is a good representation of standard costs included under the umbrella of CAM:
- Parking lot maintenance including repairing cracks, resurfacing, repainting lines, and parking lot lighting.
- Lawncare and landscaping including mowing, weed control, fertilizing, mulching, irrigation system maintenance, trimming shrubs and trees, and planting flowers.
- Winter snow removal and ice control.
- Sidewalk maintenance.
- Cleaning hallways and replacing lights.
- Cleaning and stocking shared restrooms.
- Trash removal.
- Elevator maintenance.
- Utility costs for electricity, water and gas to the common areas.
- Onsite management and security.
- Other maintenance costs such as building repairs, property management fees, administrative costs, local permits, property taxes and insurance.
Keep in mind CAM charges can apply in non-triple net lease agreements and they can be very complicated in these instances. There are also many indirect costs associated with CAM charges so make sure to ask your property manager for a detailed summary of the exact expenses included in your commercial real estate lease agreement.
