What Are Common Area Maintenance Charges (CAM)?

What Are CAM Charges?

Common Area Maintenance (CAM) charges are fees tenants pay to cover the cost of operating and maintaining shared spaces in a commercial property, such as lobbies, hallways, landscaping, and parking lots.

These fees cover costs for things like landscaping, parking lot maintenance, and janitorial services for lobbies and bathrooms. They do not usually include tenant specific costs such as supplemental HVAC for a server room.

Are CAM Fees Included in My Rent?

Whether CAM fees are included in your rent depends on the type of lease structure. The table below summarizes how each lease type handles CAM charges and what tenants are typically responsible for:

CAM Fee Responsibility by Lease Type

For example, in a triple net lease, if a tenant rents 15% of a building, they're responsible for 15% of the total CAM charges. In contrast, under a gross lease, CAM is built into one lump-sum payment, so tenants don't pay these expenses separately.

Each lease type shifts different levels of responsibility to the tenant. To understand how these structures affect your financial obligations, refer to our full guide on types of commercial leases.

What is Included in CAM Charges?

What's included in a tenant’s CAM fees can vary from building to building and landlord to landlord, so it is important for tenants to carefully read their leases and understand what their CAM entails. Industrial and retail tenants will also see a very different list of CAM items due to the nature of their businesses and the buildings they typically occupy.

For office tenants, it is ordinary to see the following items included in CAM expenses:

• Lighting
• Water for irrigation, drinking, and restrooms
• Landscaping
• Parking lot maintenance
• Administrative fees
• Sidewalks
• Driveways
• Stormwater management
• Electric
• Janitorial services
• Management salaries and fees
• Sewage
• Window washing
• Stairwell maintenance

For industrial properties, the following items are typically included in CAM expenses:

• Common area lighting
• Water for irrigation
• Landscaping
• Parking lot maintenance
• Administrative fees

For retail properties, the following items are often included in CAM expenses:

• Common area lighting
• Water for irrigation
• Landscaping
• Parking lot maintenance
• Administrative fees
• Sidewalks
• Driveways
• Stormwater
• Utility facilities
• Loading docks
• Delivery areas

Administrative fees are a negotiated percentage of all costs of operating and maintaining a property.

How to Calculate Common Area Maintenance Charges

At the beginning of the year, the property manager will estimate the expected CAM expense as part of the building's annual budget. Each tenant will then be billed monthly for this as a part of their operating expenses.

The portion of the overall CAM expense that tenants are responsible for paying is determined by the percentage of square footage they occupy in the gross leasable area of the building.

This estimation is reconciled at the end of the year, and the tenant will either be billed for their portion of any overages or credited any excess paid.

Good property managers should be able to see any potential overages mid-year and will adjust the estimated CAM expenses for the rest of the year. This would raise a tenant’s monthly operating expenses, but will prevent the pain of writing an unforeseen, large check for a lump sum at the end of the year.

Example: If CAM costs are estimated at $120,000 annually and a tenant leases 10% of the space, their monthly CAM charge would be $1,000.

CAM Reconciliation

CAM reconciliation is the process of comparing estimated Common Area Maintenance (CAM) charges paid by tenants with the actual expenses incurred by the landlord throughout the year. This ensures that all maintenance costs are fairly distributed, with tenants either receiving a refund for overpayments or being billed for any shortfalls. Understanding CAM reconciliation is key to managing and budgeting for shared property costs effectively.

Legal Rules That Govern CAM Charges

CAM fees must be clearly defined in the lease, what they include, how they're calculated, and whether increases are capped. Ambiguous terms often lead to conflict, so tenants should negotiate specifics like exclusions for capital expenses and audit rights upfront.

Landlords should provide a detailed breakdown of CAM costs and share updated reports during reconciliation. Tenants should review these documents and ask questions about any unclear charges.

Local regulations may also affect how CAM charges are disclosed. Some jurisdictions have stricter rules on transparency and cost allocation. To avoid issues, consult a legal professional who understands regional lease laws.

Can CAM Expenses Be Negotiated?

Since CAM expenses are a reimbursement of costs incurred by the landlord throughout the year, they usually aren’t negotiated. However, understanding these costs and their impact on your cap rate can be crucial from an investor's perspective. For instance, efficiently managing CAM expenses can lower operational costs and therefore increase the value of the property, leading to a more favorable cap rate. Regular commercial real estate (CRE) appraisals can further help investors understand the worth of their property, factors affecting its value, and how to enhance its profitability.

CAM expenses often include many indirect costs that are not easily identifiable, so it is important to ask the landlord to narrowly define the exact expenses included in your lease. Some expenses, such as security costs, utilities, and snow removal expenses for instance, are considered “uncontrollable.”

A tenant rep broker may be able to help tenants negotiate lease terms to limit the percentage that CAM expenses can increase. These CAM expense caps should be negotiated into initial lease terms. The landlord may try to negotiate a floor for annual CAM expense increases.

Practical Tips for Tenants and Landlords

For Tenants

• Read your lease thoroughly: It is important to fully understand your lease agreement, which outlines not only your responsibilities regarding CAM charges but also other important aspects like tenant improvement allowance. If there is anything unclear, consult with a legal professional.
• Negotiate your lease: Certain aspects of the lease are negotiable, including CAM charges. Seek the expertise of a tenant representative to effectively negotiate in your favor.
• Regularly review CAM charges: Ask for yearly breakdowns of CAM costs from your landlord to ensure all expenses are justifiable and accurate. This can help you anticipate and budget for future charges.

For Landlords

• Maintain clear communication: Transparency goes a long way in maintaining a positive relationship with your tenants. Provide a detailed breakdown of CAM fees and engage in open discussions about any changes or increases.
• Regular property maintenance: Regularly inspect and maintain your property to avoid larger unexpected expenses. Unforeseen costs could escalate CAM costs causing disputes with tenants.
• Consult with a legal professional: Commercial leases can be complex. Consult with a legal professional to ensure the legality of your leases and reduce the risk of potential disputes.

Remember, whether you're a tenant or a landlord, understanding, and effectively managing CAM charges can lead to better leasing outcomes, minimized disputes, and optimal commercial property operations.