09 Mar Common Area Maintenance (CAM) Charges
Operating a shopping center or being a tenant can be a complex task that involves various expenses beyond the rent paid by tenants. One of the most complex of these costs is the Common Area Maintenance (CAM) charges. These charges cover expenses related to the maintenance and upkeep of common areas such as parking lots, landscaping, and weather-related repairs. However, the exact language and calculation of CAM charges in a lease agreement can significantly impact both landlords and tenants.
Let’s explore the intricacy of CAM charges and how they can potentially impact landlords and tenants based on the lease language in relation to weather, parking lot maintenance, and landscaping.
Weather-related expenses such as snow removal, landscaping during extreme weather conditions, and water damage repairs can significantly impact the CAM charges. The lease agreement must be explicit in detailing who bears the cost of these expenses.
For instance, if the lease agreement states that the landlord is responsible for snow removal costs up to a specified dollar amount, any additional expenses exceeding this threshold will be passed on to tenants via CAM charges. In contrast, if the lease agreement specifies that tenants are responsible for a fixed percentage of all weather-related expenses, they will have to pay the cost regardless of whether the expenses exceed the agreed-upon threshold.
Parking Lot Maintenance
The maintenance and repair of the shopping center’s parking lot are other expenses typically covered by CAM charges. This can include repairing potholes, repainting parking spaces, and replacing damaged light fixtures.
The lease agreement language can impact how much tenants are required to contribute to these costs. For instance, some lease agreements may specify that tenants are responsible for a fixed percentage of all parking lot maintenance costs, while others may require tenants to pay a flat fee per parking space they occupy.
The type of lease agreement can also affect how tenants will be charged for parking lot maintenance costs. For example, a Triple Net (NNN) lease requires the tenant to pay for all the shopping center’s expenses, including CAM charges. On the other hand, a Full Service (FS) lease allows the landlord to bear some or all of the shopping center’s expenses, such as CAM charges.
Maintaining attractive landscaping is crucial to the shopping center’s appeal to customers. However, the cost of landscaping can significantly vary based on the shopping center’s grounds’ size and complexity.
The lease agreement language can impact how much tenants are required to contribute to these costs. Some lease agreements may require tenants to contribute a fixed percentage of all landscaping costs, while others may specify a flat fee based on the square footage of their leased space.
How CAM Charges can Impact Landlords and Tenants
The impact of CAM charges on landlords and tenants can significantly vary based on the lease agreement’s language. For instance, if the lease agreement specifies that tenants are responsible for a fixed percentage of all CAM charges, including landscaping, parking lot maintenance, and weather-related expenses, they will have to pay more if the shopping center incurs higher expenses.
Suppose we consider a hypothetical shopping center with three tenants, each occupying 1,000 square feet of leased space. The shopping center incurs $15,000 in total CAM expenses, and the lease agreement specifies that tenants are responsible for a fixed percentage of all CAM charges. Under this lease agreement, each tenant would be responsible for $5000 in CAM charges ($15,000 / 3 tenants), or $5 per square foot of leased space.
In contrast, if the lease agreement had specified that tenants were only responsible for a flat fee per square foot of leased space, the impact on each tenant and landlord’s bottom lines could be quite different. For instance, if the lease agreement had specified a flat fee of $2 per square foot of leased space, each tenant would only be responsible for $2000 in CAM charges. and the Landlord would be left with balance of $9000. CAM expenses can also be divided by a pro-rata share of the overall shopping center, but how does the Lease handle vacancy with respect to pro-rata share?
In conclusion, CAM charges are a crucial aspect of operating a shopping center, covering various expenses beyond the rent paid by tenants. The intricacy of these charges and how they impact landlords and tenants depend significantly on the lease agreement’s language. It is crucial to carefully review and negotiate the lease agreement to ensure that both parties are aware of their obligations regarding CAM charges. Additionally, it is essential to have an open and honest communication between landlords and tenants to avoid any potential disputes regarding the same. As always, ICONIC is here to help you navigate these waters Landlord and Tenant alike.
Thank you for reading.
Kees Janeway – Managing Partner, ICONIC Real Estate