Multi-tenant buildings often have shared spaces that benefit all tenants on the property. Did you know tenants have to pay for the upkeep of those spaces?
When tenants move into office and retail properties, they often have to pay common area maintenance charges, more commonly referred to as CAM fees. These charges are passed from landlords to tenants for routine maintenance and repairs. Pass-through costs are laid out in the lease agreement and vary depending on the landlord and market.
This quick guide provides common area maintenance fee examples and calculations, along with information about annual CAM reconciliation.
- What Are CAM Fees?
- Common Area Maintenance Examples
- Is CAM Considered Rent?
- Common Area Maintenance Calculations
- What is CAM Reconciliation?
What Are CAM Fees? Who Pays Them?
CAM fees are charges the tenant pays to the landlord for the use of shared spaces. In most cases, CAM fees are paid in addition to rent. Any cost related to the maintenance or management of the property could be considered a CAM fee.
Only tenants in office buildings, retail spaces and warehouses typically pay CAM charges. These properties often have shared lobbies, elevators, outdoor areas and parking lots. CAM fees maintain these spaces and encourage landlords to make necessary improvements. Since the landlord isn’t taking on the brunt of the expenses, they are more likely to make repairs quickly.
CAM charges reimburse landlords for costs related to owning and managing the property. Requiring tenants to pay CAM charges protects the landlord from increasing service and material costs.
Common Area Maintenance Examples
What are typical CAM charges? And what’s considered a common area?
Anything that one tenant shares with another could be deemed a common area. Extra costs associated with common areas depend on the agreement between the tenant and landlord. Typical common area maintenance expenses include repairs, maintenance and cleaning costs for shared spaces.
Common area maintenance examples include resurfacing or repainting lines on the parking lot, contributing to landscaping fees and paying the janitorial services for shared restrooms. It’s not uncommon for tenants to pay part of the utilities for common areas too.
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Not all of the examples listed above will be included in every lease or required for every tenant. Some tenants may also pay for capital repairs, property insurance and property taxes.
Is CAM Considered Rent?
Landlords can add CAM fees to rent or charge them separately. Either way, tenants should consider these additional expenses carefully because they increase the total occupancy cost.
Commercial office leases usually add CAM fees to rent. Retail and industrial tenants are often charged for CAM fees and rent separately. You’ll know if CAM fees will be included or separate from your rent based on the type of lease you sign.
Triple Net Lease (NNN Lease)
Triple net leases are popular commercial real estate leases. Each “N” in the lease name represents a cost the tenant agrees to pay. Following a triple net lease, the tenant pays for real estate taxes, property insurance and maintenance fees on top of rent. Tenants take on the most responsibility under a triple net lease.
With a triple net lease, the tenant pays:
- Maintenance costs
Double Net Lease (NN Lease)
A double net lease requires the tenant to pay their share of property taxes and insurance premiums and deductibles in addition to rent. The landlord covers any maintenance or repairs. The double net lease offers a balance between the two parties’ responsibilities.
With a double net lease, the tenant pays:
Under a net lease, the tenant takes on less responsibility. These leases are uncommon in commercial real estate because they don’t provide the landlord with much protection. The tenant pays rent and annual property taxes, while the landlord handles the rest.
It is important for the tenant to understand that although the total monthly rent is fixed, the landlord’s motivation is to save maintenance costs and reserves. Net leases motivate the landlord to maintain the property in the best condition possible and support the tenant’s needs and wishes.
With a net lease, the tenant pays:
Landlords take on all operating and maintenance expenses with gross leases. The tenant has no responsibilities under a gross lease agreement except for paying a flat rental rate. Usually, this means the rental rate will be much higher.
With a gross lease, the tenant pays:
Common Area Maintenance Calculations
How do you estimate CAM fees? If you are the only tenant in a building, you will pay the maintenance costs alone. Within multi-tenant properties, businesses shoulder the total costs together. The tenants pay a pro-rata share of CAM charges based on the amount of space each occupies.
Landlords calculate a tenant’s share of expenses by dividing the tenant’s square footage by the gross leasable area.
Step 1: Tenant’s Square Footage / Gross Leasable Footage = Percentage of CAMs
Step 2: Percentage of CAMs x Property’s Estimated Annual CAMs = Tenant’s Annual CAMs
Another way to calculate CAM fees is to find the CAM expenses per square foot. To do this, the landlord divides the estimated annual expenses by the property’s square footage.
Annual CAM Expenses / Property’s Square Footage = CAM Fee by Cost per Square Foot
With either calculation, the tenant pays a portion of maintenance fees based on the amount of space they occupy. The larger the area you rent, the higher your CAM charges.
If tenants do not share common spaces equally, the landlord may calculate costs for each tenant individually. Tenants may be able to negotiate caps to protect them from paying CAM charges far beyond their budgets.
Load Factor Calculations
Sometimes, landlords charge CAM fees by “renting” the shared spaces. The rent of the common area is added to the tenant’s total rent.
Landlords perform load factor calculations to determine what percentage of the property counts as a common area. Once the percentage is found, landlords add it to the leased space’s usable square footage. The final amount is the rentable square footage, which determines a tenant’s rent amount.
What Is a CAM Reconciliation?
Landlords estimate a property’s annual CAM charges at the beginning of the year. Tenants are billed each month based on this estimate. Since it’s an estimate, a tenant may pay too much or too little in CAM charges during the year.
CAM reconciliations ensure that the amount tenants paid matches the expenses that occurred. At the end of every year, landlords audit their CAM estimates versus actual costs, often with the help of an accountant. Tenants are credited if they paid too much or charged for overages.
Of course, tenants can challenge the accuracy of a landlord’s audit. Pay attention to any guidelines provided within the initial audit. If the audit has a deadline to request additional details, tenants must make requests before the date passes or risk forgoing the opportunity to ask for more information.
Whether you’re a tenant or landlord, it’s important to understand how CAM fees work. Most commercial real estate agreements include CAM charges so that shared spaces are maintained for employees and customers.
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