Not all commercial real estate leases are the same. There are several types of commercial leases: Gross Leases, Net Leases, Percentage Leases, and many others. Each lease has different requirements, expectations, and fees. Some include common area maintenance costs. But what are these fees, and what do they mean for tenants?
- Types of Commercial Leases
- What Are Common Area Maintenance Costs?
- Consider These 7 Common Area Maintenance Items When Negotiating a Commercial Office Lease
- How to Calculate CAM Charges
- The Variable Cost of Common Area Maintenance
Types of Commercial Leases
Landlords typically determine the specific terms of a commercial lease. Gross leases usually cover all expenses (with exceptions) and tend to cost more per month.
Percentage leases are common with retail landlords and require tenants to pay a percentage of their profits to the landlord. Within these percentage leases, landlords may include common area maintenance fees, which we will discuss in detail below.
Many office complexes, including office, medical, industrial, and other commercial properties, commonly come with Net Leases. In a Net Lease agreement, tenants pay a set monthly rent along with usual costs to cover building routine operations, maintenance, and use of the property. Costs associated with a Net Lease include real estate taxes, property insurance, and common area maintenance costs.
Costs associated with a Net Lease include real estate taxes, property insurance, and common area maintenance costs.
What Are Common Area Maintenance Costs?
Common area maintenance costs, often shortened to CAM, are a major component of any commercial lease. These fees cover the cost and maintenance of any common areas located on the property. In retail parks, these areas include gathering areas, outdoor space, landscaping, and parking facilities. Office buildings use CAM fees to maintain lobbies, elevators, common meeting rooms, bathroom facilities, and other building maintenance or renovation costs.
Some landlords may refer to CAM fees as Load Factor fees. In a Triple Net Lease (NNN), CAM fees make up one-third of this triplet (along with taxes and insurance). While the latter two factors tend to be fairly standard and predictable, CAM charges might vary from month to month and from season to season.
CAM costs allow the owner to pass maintenance costs on to tenants (also referred to as “pass-through” costs). As a result, you, the leaseholder, pay for certain expenses incurred by the property owner and property manager. Typical CAM charges include expenses like janitorial services, minor building repairs, landscaping, snow removal, and other maintenance-related expenses on a pro-rata (prorated) basis.
For example, if there are ten tenants leasing space in a commercial property, all ten tenants pay a portion of the total landscaping cost. In many cases, landlords determine the CAM portion each tenant pays based on the square footage of the space that each occupies. That is, a tenant occupying several floors will pay a higher CAM percentage than a business that leases only a portion of one floor.
Depending on the lease terms, tenants may pay either fixed or variable CAM fees. Tenants may pay these CAM fees at different intervals – monthly, quarterly, or even annually, depending on the lease agreement.
Consider These 7 Common Area Maintenance Items When Negotiating a Commercial Office Lease
Before leasing a commercial space, you should be aware of typical CAM costs which you might incur. In this article, we look at seven common area maintenance items to consider when negotiating a commercial office lease.
Every property needs periodic updates and renovations. These might be minor improvements, like cosmetic fixes or small repairs. At other times, landlords may undertake major projects involving substantial improvements to a property. Landlords make these improvements to increase the property value or extend its life. If the landlord includes this expense in CAM, then you may be expected to pay your portion of any capital improvement projects.
However, some tenants will argue that they shouldn’t pay for projects that won’t benefit them directly. For instance, these improvements include new HVAC systems, roof upgrades, or accessibility improvements. While some of these improvements will benefit your business directly, some might not.
To avoid any confusion or unexpected fees, it is very important to get as much clarity as possible from the landlord about capital improvements. Typically, you can negotiate CAM costs, removing your responsibility to help fund building renovations.
Commercial tenants expect that common areas of properties will be cleaned regularly. Commercial property owners typically have their own janitorial staff of contract with a janitorial company. As such, each tenant also must pay a portion of the janitorial contract fees. This fee may also include the cost of janitorial supplies.
Since having a secure facility is crucial to safeguarding businesses and their equipment, security services are a part of CAM. Alarms systems, on-site security personnel, overnight security, along with fire and smoke detection systems are all a part of property security. Since the tenants of a commercial property share these services, they usually also share the expense.
Use of lighting, plumbing, electrical wiring, HVAC, and other systems within common areas like lobbies, restrooms, and elevators are shared by all tenants. Thus, these costs are also shared by tenants. When reviewing your lease, ask about your share of these costs. Typically, your share will depend on your leased space. Tenants who occupy the most square footage will often pay the largest portion of these costs.
Managing commercial properties requires a great deal of time and effort. Therefore, instead of managing commercial properties themselves, many landlords contract with property management companies. These companies handle a wide range of services including leasing, building operations, tenant communications, build-out management, facility maintenance, stakeholder reporting, financial services, and other services that directly impact both the owner and tenants. If your landlord uses a property management service, you and the other tenants will probably share this cost.
Regardless of the commercial building, tenants usually share the costs for parking areas. The property might only have a surface parking lot, or it could have a parking deck. Either way, the costs associated with parking lot and parking garage maintenance, repaving projects, and parking staff are usually included in CAM fees.
Administrative & Maintenance Fees
Although many landlords may outline the CAM fees in detail, some might only list a generic “Administrative Fee” or “Maintenance Fee.” If the lease doesn’t clearly spell out the specific charges, ask the landlord to elaborate. Your CAM fees could be paying for things like permits, any legal costs, advertising, signage, or general expenses. You should not be paying for expenses like the owner’s income tax filing fees, costs associated with rent collection, or other services that benefit the owner(s).
If your CAM does include these charges, ask to renegotiate these terms. The tenant services experts here at CXRE can help you negotiate a fair lease for your business. Contact us today to learn more about our leasing services.
How to Calculate CAM Charges
This is a general calculation method and may not represent your exact fees. Contact the property directly to calculate exact CAM charges incurred under your lease agreement.
Calculating CAM charges is fairly straightforward. Below are three easy steps for determining CAM on your lease.
- First, find out the property’s gross leasable area (GLA). Usually, you can get this information from the leasing agent. The GLA is the total square footage of rentable space in the property.
- Next, find the total square footage that you want to lease. You can ask the leasing agent or find this information online or in other marketing materials.
- Lastly, divide the square footage of the space you want to lease by the GLA. The resulting figure will be the percentage of your portion of the total CAM fees. For instance, if you want to lease 1000 SF in a 10,000 SF building, your share of the CAM is 10% – 1,000/10,000 = 0.1 (10%).
The Variable Cost of Common Area Maintenance
CAM costs will vary depending on what type of property you choose and the type of lease you sign. If you lease space in an office building, you will share numerous costs with your fellow tenants. On the other hand, certain retail centers and office parks don’t share amenities like lobbies or elevators. Instead, they share parking, sidewalks, landscaping, and other amenities.
Before you sign a commercial lease, be sure you find out exactly what the CAM fees do and do not include.
Before signing a commercial lease, make sure that you have an expert review the contract. At CXRE, we can help you to navigate a commercial lease. Our expert staff have decades of experience and are ready to assist you. You should never sign a contract until you know exactly what you’ll be paying. Once you have signed the lease, it is legal and binding, and cannot easily be changed.
Contact our expert leasing team before you sign your commercial lease. We can help protect your business from unnecessary CAM costs.