Industry jargon. Commercial real estate is chock-full of it. Whether you have negotiated a commercial lease before or it’s your first time, chances are you will run into some potentially confusing terms. One term that often stumps even the most seasoned lessee is common area maintenance (CAM). This term refers to the fees tenants pay landlords for maintaining the common areas of a commercial property. But what specifically does common area maintenance entail, and how will it impact your office space costs? Keep reading to learn more about the ins and outs of CAM.
What is common area maintenance?
Common area maintenance, also known as CAM, refers to the costs that go into operating, repairing, and maintaining any common areas on a property that a tenant does not specifically rent. In other words, when you lease a commercial office space, you are ultimately paying for two separate spaces – the space that your business occupies, also known as the usable area, and the space that everyone shares, known as the common area.
Usable Area vs. Common Area
The usable area is the space that the tenant will exclusively occupy and use to run their business. This area includes everything in your physical space from break rooms, individual offices, reception areas, and any other facilities within the walls of your office space.
The common areas are spaces outside your physical office space shared by you and the other tenants in the building. Public restrooms, parking lots, elevators, public corridors, hallways, and lobbies are common area spaces.
What does CAM usually include?
CAM fees are a significant part of any commercial real estate lease agreement. These fees include any of the costs associated with maintaining the common areas on the property; however, the requirements may vary from building to building based on a variety of factors, including but not limited to property type, number of tenants, regional climate, and building classification. Your lease will provide a list and description of all common areas on the property. Some items often included in CAM are:
- Administrative and management fees
- General building maintenance
- Janitorial services
- Parking lot maintenance
- Security systems and personnel
- Water usage
- Window washing
Controllable expenses vs. uncontrollable expenses
When it comes to common area maintenance fees, there are two different categories: controllable expenses and uncontrollable expenses.
Controllable expenses are any common area items that the landlord has direct control over and do not vary based on occupancy or usage. Examples of controllable expenses include janitorial, ground maintenance, and security costs.
Uncontrollable expenses encompass the common area items that the landlord does not have control over and often vary based on occupancy, usage, and day-to-day operations. Examples of uncontrollable expenses include water utilities, taxes, insurance, and building maintenance.
Common area maintenance in leases
Your lease agreement will directly state any CAM charges; however, it can include confusing terms regarding the allocation of these charges. Although these terms can vary from lease to lease, here’s a broad overview of the different types of lease agreements and a breakdown of who is responsible for the CAM charges – the tenant or the landlord.
- Gross or Full-Service: This all-inclusive lease agreement means all costs are included in the tenant’s monthly rent payment, including operating expenses, common area maintenance fees, and taxes.
- Modified or Gross: This lease agreement requires the tenant to pay a base monthly rent amount and share the costs associated with taxes, utilities, insurance, and maintenance.
- Net: In a net lease agreement, the tenant pays a portion of the operating expenses for the building plus the specified monthly rent amount.
- Triple Net (NNN): The tenant is responsible for all of the costs in the lease agreement, including operating expenses, taxes, insurance, and the monthly base rent amount.
How do you calculate common area maintenance?
Common area maintenance is typically calculated annually, then divided into monthly payments doled out to each tenant on a per square foot basis. These charges are often an estimate based on the previous year’s overall common area maintenance costs.
This estimate is then divided proportionally based on the tenant’s pro-rata share, which is calculated by dividing a tenant’s square footage by the total leasable area of the building. Your pro-rata share will determine what percentage of total CAM fees you will be responsible for throughout the duration of your lease.
If you were to lease 3,000 square feet in 30,000 square foot building, your share of CAM would be 10% (3,000/30,000 = 0.1 = 10%).
Common area maintenance annual reconciliation
CAM charges are estimated at the start of the year; however, the year’s actual common area maintenance charges will be calculated at the year’s end. If the total charge was over the amount estimated, the tenant must pay the difference. However, if the total was under the amount paid by the tenant, the landlord is responsible for crediting the tenant the amount that was overpaid. This practice is known as common area maintenance reconciliation.
Understanding & negotiating common area maintenance costs
Common area maintenance charges are conventional in many commercial leases; still, tenants should negotiate CAM clauses within their lease to ensure fair allocation of costs and minimize financial impact. Negotiating a cap on CAM is the best way to protect against over-budget lease expenses, as costs often fluctuate from year-to-year. Your ability to negotiate favorable lease terms will depend on current market conditions, your bargaining position, and a variety of other factors.
Our team of expert tenant brokers can help your review and negotiate your lease so you will know exactly what you will be paying for and avoid any unnecessary common area maintenance fees. We’ll help you get the best deal possible on your next office space — just fill out the form below and we’ll be in touch.