What Is CAM in a Commercial Lease?

You have probably heard CAM charges mentioned in commercial leases. After all, it is one of the most important aspects you should grasp as a business owner when leasing. Having an attractive common area in your property will give you a competitive advantage for tenants. As such, you can split the CAM costs among tenants. But what exactly is it?

Understanding the CAM Charges

Common area maintenance, CAM, is the cost business owners pay for the common areas to all tenants in a commercial building. Typically, these are the charges for your property management and maintenance paid by tenants. This benefits you since you are guaranteed that the common utilities are legally and rightfully reimbursed and maintenance costs are cut down.

Common area maintenance charges may sound like extra charges that tenants must pay. While there is no lie in it, it equally benefits them. Every cleaning and repair is automatically done without them having to go through the hassle of finding ways to get it done.

CAM and the Types of Commercial Leases

Depending on the type of commercial lease the tenant signed, they may or may not be charged the CAM costs. Here are the basic costs and terms associated with a commercial lease.

Gross Lease

A gross lease is a common type in office buildings. The landlord is responsible for CAM costs, insurance and property taxes. That is, the rent is flat with no fluctuations in operating expenses from year to year. In most gross leases, landlords cover the utilities, some even as far as paying for the janitorial cost.

Net Lease

In a net lease, the landlord and tenant pay their share of the property taxes. However, the CAM and property insurance are solely on the landlord. This type of lease usually has a higher lease than a net net and triple net lease, as you will see below.

Net Net (NN) Lease

Tenants in net net lease pay property taxes and insurance. The landlord covers all the CAM charges. This type of lease attracts tenants who want to mitigate their risk. It is also a good investment if the CAM costs are shared among multiple properties.

Triple Net (NNN) Lease

As the name suggests, tenants in triple net leases pay their share on almost all expenses – CAM, property insurance and property taxes. Capital expenditures are the only expenses the landlord accounts for. These are repairs and upgrades made to the property. Note that expenses vary depending on the lease negotiations between you and the tenant.

Triple net lease has a lower lease rate than net and net net lease since tenants pay their pro rata share of the expenses.

How to Calculate CAM Fees

As a property owner, you can choose from the different ways to reconcile CAM charges to your tenants. Some need a more detailed accounting; others are designed for simplicity.

There are two ways to calculate CAM costs; fixed fee and tenants' total gross leasable area percentage. The former involves a fixed annual fee built into the lease that tenants pay along with their rent. For the latter, you estimate the yearly CAM costs and divide them among tenants by their gross leased area. The estimation is divided by 12 and added to the monthly rent.

Trust Rochford Law

It's no secret that common area maintenance is a crucial aspect of a commercial lease, ensuring the upkeep of your property. But navigating complex lease agreements can be daunting, especially with no legal expertise. That is why hiring a trusted real estate lawyer like Rochford Law is essential. Let us handle the legal complexities while you focus on growing your property's value. 

Contact us today to schedule a free consultation with one of our lawyers.