What is CAM in Real Estate? What They Are and How to Negotiate Them

CAM stands for common area maintenance, and it is a charge that tenants pay to landlords in addition to their base rent to cover the costs of maintaining the shared spaces in a commercial property.

These spaces include hallways, elevators, parking lots, lobbies, and public restrooms.

What is CAM in Real Estate?
What is CAM in Real Estate?
Si Valeo Real Estate

CAM charges vary depending on the type of property, the lease agreement, and the expenses incurred by the landlord.

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Why are CAM Charges Important?

CAM charges are important for both tenants and landlords because they affect the affordability and profitability of a commercial property.

For tenants, CAM charges are part of their operating expenses, and they need to understand how they are calculated, what they include, and how they may change over time.

How are CAM Charges Calculated?

CAM charges are usually calculated on a pro-rata basis, which means that each tenant pays a percentage of the total CAM expenses based on the amount of space they occupy in the property.

For example, if a tenant leases 20% of the total space in a building, they will pay 20% of the CAM charges.

The percentage of CAM charges that a tenant pays is also known as their CAM factor.

What are the Types of CAM Structures?

There are different types of CAM structures that landlords use to determine how CAM charges are applied and adjusted.

The most common types are:

  • Fixed CAM

The CAM charges are fixed and do not change throughout the lease term. There is no year-end audit or reconciliation of the actual CAM expenses.

  • Year-Over-Base cap

The CAM charges increase annually based on a projected budget of CAM expenses.

Increase is capped at a certain percentage or amount over the base year, which is usually the first year of the lease.

The CAM charges are reconciled at the end of the year based on the actual CAM expenses.

  • Year-Over-Year cap

The CAM charges increase annually based on the actual CAM expenses of the previous year.

Increase is capped at a certain percentage or amount over the previous year. The CAM charges are reconciled at the end of the year based on the actual CAM expenses.

  • Year-Over-Base compounding cap

The CAM charges increase annually based on a projected budget of CAM expenses.

Increase is capped at a certain percentage or amount over the base year, which is usually the first year of the lease.

The percentage or amount of the cap increases at a compounding rate each year.

CAM charges are reconciled at the end of the year based on the actual CAM expenses.

What are the Common CAM Expenses?

The CAM expenses that tenants pay depend on the type of property, the lease agreement, and the landlord’s discretion.

However, some of the common CAM expenses are:

  • Property maintenance

This includes the costs of cleaning, landscaping, snow removal, trash removal, and other services that keep the property in good condition.

  • Insurance

This includes the costs of insuring the property against fire, theft, liability, and other risks.

  • Repairs

This includes the costs of repairing and replacing the common areas and systems, such as plumbing, electrical, HVAC, and roofing.

  • Administrative fees

This includes the costs of managing the property, such as accounting, legal, and auditing fees.

  • Pest control services

This includes the costs of preventing and eliminating pests, such as rodents, insects, and birds.

  • Security services

This includes the costs of providing security guards, cameras, alarms, and other measures to protect the property and the tenants.

How to Negotiate CAM Charges?

CAM charges are negotiable, and tenants should review them carefully before signing a lease.

Some of the ways that tenants can negotiate CAM charges are:

1.Ask for a detailed breakdown of the CAM expenses and compare them with similar properties in the area.

2.Ask for a cap or limit on the annual increase of the CAM charges.

3.Ask for a fixed CAM charge or a gross lease that includes all CAM expenses in the base rent.

4.Ask for an audit right or a verification clause that allows the tenant to review and challenge the CAM expenses and charges.

5.Ask for exclusions or reductions of certain CAM expenses that are not relevant or fair to the tenant.

Conclusion

CAM charges are an important aspect of commercial real estate leasing that tenants and landlords need to understand and agree on.

They cover the costs of maintaining the common areas in a commercial property, and they are calculated based on the tenant’s share of the total space.

The charges vary depending on the type of property, the type of CAM structure, and the type of CAM expenses.

CAM charges are negotiable, and tenants should review them carefully and seek professional advice before signing a lease.

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