CAM charges are expenses incurred in management and maintenance of shared spaces.
Common Area Maintenance Chargers (CAM) – A Guide for Commercial Tenants
Leases of commercial property often come with additional charges beyond base rent, one of the most common of these charges are the Common Area Maintenance (CAM). To ensure that end users of property manage their budgets effectively, it is crucial for them to understand CAM charges. In this article we look at what these charges are, how they are calculated and tips for end users on how to navigate them in their lease agreements.
What are CAM charges and how are they calculated?
CAM charges are expenses incurred in management and maintenance of shared spaces, such as lobbies, hallways, entrances and parking lots. Landlords and property owners often pass these costs to the end user, typically based on the size of the leased space relative to the total leasable space of the property.
The components of CAM charges are maintenance and repairs; utilities; property management services; insurance and property taxes. They can be calculated on the ‘base-year’ or ‘pass-through’ charges.
‘Base-year’ charges are based on a predetermined year in which expenses are calculated. Tenants will pay an increase in expenses in subsequent years over the base amount. ‘Pass-through’ charges require tenants to pay their pro-rata share of actual CAM expenses each year. The pro-rata portion is calculated based on the ratio of leased property square footage to the total square footage of the property.
Tips for navigating CAM charges for tenants
Review your lease agreement thoroughly and understand the CAM – ensure that you have clarity on what expenses are included and how they are calculated. The language of the CAM clause may be ambiguous or complex in some cases, consider seeking advice of a tenant representative to ensure full understanding of the lease terms.
Request transparent accounting, such as a detailed breakdown of expenses. You should also negotiate audit rights in your lease, which will allow you to independently verify CAM charges and expenses. You can also seek professional help in negotiating lease terms. An expert will be able to discuss and agree on methods to be used to calculate CAM charges, negotiate caps on annual increases and generally provide protection against unforeseeable increases in expenses.
Be proactive, establish regular communications with the property manager or landlord and make sure you’re aware of any upcoming maintenance projects and potential increases in costs. The communication will help you actively participate in decision making related to common area improvements and help you align property enhancements to your needs as an end user. You should also proactively engage in property maintenance by reporting issues promptly to prevent minor problems from escalating into bigger, costly repairs. With this in mind, it will also be imperative to collaborate with other tenants to present a unified voice to property managers and landlords.
Now that you have an overview of CAM charges, you have the baseline of maintaining a positive landlord-tenant relationship when it comes to managing your rental costs and any maintenance issues. Regular communication, as well as transparency into expenses are key to ensuring fair allocation of expenses, creating a mutually beneficial agreement for both the landlord and the tenant.