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Common Area Maintenance Costs

Posted by Capital Retail on February 12, 2019
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In commercial leases you will inevitably hear the word CAM. What is CAM you ask?

For landlords, The term “Common Area Maintenance Costs” means all expenses incurred by Landlord in maintaining, repairing, replacing, improving, operating, managing, administering and insuring the Common Areas, all facilities of the Shopping Center and all improvements within the Shopping Center, without limitation, a management fee.

For tenants, the term common area maintenance means something less than every expense that the landlord can think of! Examples of exclusions to CAM include (i) items of expense commonly known as carrying charges such as interest, mortgage payments, ground rents, finance charges; (ii) costs and expenses incurred by Landlord that are considered capital expenditures; and (iii) wages, salaries or other compensation paid to any executive employee above the level of property manager.

They key is compromising on what is capped and what should not be included. Almost always, the landlord’s lease will include the property management fees as included in the definition of common area maintenance. Larger tenants with more leverage will negotiate to have the property management fee capped or instead agree to an “administration fee”. Administrative and property management fees are sometimes capped for certain tenants. Most common area maintenance calculations include one or the other and sometimes even both. Example – Admin Fee OnlyIn addition, any administrative fee included in Common Area Maintenance Costs shall not exceed ten percent (10%) of Common Area Maintenance Costs. If the total CAM costs are $20,000 for the year then the cap on the admin fee is $2,000. Example – Property Management FeeThe supervision and administration of said common areas, including such fees as may be paid to a third party management company in connection with same (the “Property Management Fee”). Assuming the annual rent is $100,000 per annum and the property management fee is 5% of the base rent collected. Therefore, the tenant will pay $5,000.

A right to audit the Landlord books to ensure they are not being overbilled is often included in any lease.  Provided that Tenant has made all payments that have been invoiced by Landlord and is not otherwise in default under this Lease, Tenant shall have the right to audit the books, records and computations of Landlord relative to Common Area Maintenance Costs at their own costs. Whether you are a landlord or tenant, feel free to contact us with any comments or questions you have regarding common area maintenance and related costs. In the meantime, check out our other blog posts on common area maintenance budgets  and CAM lease clauses and negotiations .

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