When reviewing a commercial lease—especially a triple net (NNN) lease—you’ll likely come across the term CAM expenses. These costs are an important part of how tenants contribute to the overall operation and maintenance of a property. Below is a clear, practical breakdown to help tenants and property owners better understand how CAM expenses work. This is an example structure, as CAM expenses may vary by lease.
What Are CAM Expenses?
CAM stands for Common Area Maintenance. In a triple net lease agreement, tenants are typically responsible for paying their share of:
- Common area maintenance (CAM)
- Real estate taxes
- Property insurance (often fire and casualty insurance)
This section of the lease may be titled something like:
“Tenant’s Proportionate Share of Common Areas and Facilities, Real Estate Taxes and Fire and Casualty Insurance.”
What Does “Proportionate Share” Mean?
A tenant’s proportionate share refers to the portion of total property expenses they are responsible for, based on the size of their leased space.
Formula:
Tenant’s Square Footage ÷ Total Rentable Square Footage of Building
This percentage is then applied to the total CAM, tax, and insurance expenses.
For taxes and insurance, proportionate share typically reflects the actual costs attributable to the leased premises.
When Are CAM Expenses Paid?
CAM expenses are usually paid monthly, in addition to base rent.
Depending on the lease terms, CAM payments may begin:
- On the same date as rent, or
- On the lease commencement or possession date
What Do CAM Expenses Cover?
CAM expenses include the tenant’s share of the actual cost of operating and maintaining common areas, such as:
- Parking lots and access roads
- Sidewalks
- Landscaping and green spaces
- Shared facilities used by tenants, employees, and customers
Maintenance and operations may include:
- Lawn care, shrubs, and plant upkeep
- Water and sewage services
- Utility system maintenance and repairs
- General property upkeep
What Is Typically Excluded from CAM?
Leases often specify costs that cannot be passed through as CAM expenses. These may include:
- Mortgage debt service
- Ground lease payments
- Real estate taxes and insurance (if billed separately)
- Capital expenditures
- Depreciation and amortization
- Business operating costs of the landlord entity
- Hazardous material remediation
- Brokerage commissions and advertising expenses
Example: How CAM Is Calculated
Let’s break it down with a real-world example:
- CAM + Insurance: $3.18 per sq. ft.
- Real Estate Taxes: $3.74 per sq. ft.
- Total CAM: $6.92 per sq. ft.
If a tenant leases 3,854 sq. ft., the calculation looks like this:
$6.92 × 3,854 = $26,669.68 annually
$26,669.68 ÷ 12 = $2,222.47 per month
Annual Reconciliation
After the first year of the lease, CAM expenses are typically reconciled annually.
- If the tenant overpaid, they receive a credit
- If the tenant underpaid, they pay the difference
This adjustment is usually applied to the next rent payment.
Controllable vs. Uncontrollable CAM Expenses
CAM costs are often divided into two categories:
Controllable Expenses
These are costs the landlord can influence or manage:
- Alarm monitoring
- Elevator maintenance
- Janitorial services
- Landscaping
- Parking lot upkeep
- Property maintenance and management
- Trash removal
- Window cleaning
Uncontrollable Expenses
These are costs that fluctuate based on external factors:
- Utilities
- Snow removal
- Insurance premiums
- Property taxes
Final Thoughts
CAM expenses are a key component of triple net leases and can significantly impact a tenant’s total occupancy cost. While this example illustrates a common structure, every lease is different, and the exact terms and calculations can vary.
Carefully reviewing and understanding the CAM section of a lease can help avoid surprises and ensure transparency between landlords and tenants.
