Not all commercial real estate leases are the same, nor do they hold the same purpose. Each type of lease has different requirements, expectations, and fees. Only some of these lease types include common area maintenance costs (CAM), which can significantly impact the investor and tenants.
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Types of Commercial Leases That Include CAM Cost
The landlord or owner usually determines the specific terms of a commercial lease. The following are common commercial leases that include common area maintenance costs in the document:
- Gross leases usually cover all the expenses, with some exceptions, and tend to cost more per month.
- Percentage leases are common with retail properties and require tenants to pay a percentage of their profits to the landlord and may include CAM costs.
- Net Lease agreements are set up to where tenants pay a set monthly rent and usual costs to cover building routine operations, maintenance, and use of the property. Many office complexes commonly use this lease type – medical, industrial, and other commercial properties. 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 (CAM) are a significant component of any commercial lease, whether included or not. CAM costs are the fees that cover the cost and maintenance of any common areas located on the property. These areas include gathering areas, outdoor space, landscaping, and parking facilities in retail parks. In office buildings, this provides to maintain lobbies, elevators, common meeting rooms, bathroom facilities, and other building maintenance or renovation costs.
Some may also refer to CAM fees as Load Factor fees. CAM charges might vary from month to month and from season to season compared to some other predictable and stable expenses like taxes and insurance, which will be covered on commercial lease agreements.
CAM costs allow the owner to pass maintenance costs on to tenants, also referred to as pass-through costs. As a result, the leaseholder or tenant will pay for certain expenses incurred by the property owner and manager. Here are some typical CAM costs: janitorial services, minor building repairs, landscaping, snow removal, and other maintenance-related expenses on a pro-rata (prorated) basis.
Tenants may pay either fixed or variable CAM fees depending on the lease terms. Also, tenants may pay these CAM fees at different intervals – monthly, quarterly, or even annually.
7 Common Area Maintenance Cost to Consider When Negotiating a Commercial Office Lease
Below are seven of the most typical common area maintenance items to consider when negotiating a commercial office lease:
1. Capital Improvements
Every property will need periodic updates and renovations. These capital improvements range from minor cosmetic fixes or small repairs to major projects. Landlords make these improvements to increase the property’s value or extend its life. If the landlord includes this expense in CAM, then the tenant may be expected to pay a portion of any capital improvement projects.
However, some tenants argue that they shouldn’t pay for projects that won’t benefit them directly. To avoid any confusion or unexpected fees, tenants must get as much clarity as possible from the landlord about capital improvements. A tenant can negotiate to remove costs surrounding building renovations.
2. Janitorial Services
Commercial tenants expect that common areas of properties will be cleaned regularly. Commercial property owners typically have their contract with a janitorial company. Usually, each tenant must pay a portion of the janitorial contract fees, which may include supplies.
3. Security Services
Most tenants choose facilities with security amenities to safeguard their businesses and equipment. This includes alarms systems, on-site security personnel, overnight security, and fire and smoke detection systems. Since the commercial property tenants share these services, they usually also share the expense.
4. Systems
Typically, lighting, plumbing, electrical wiring, HVAC, and other systems within common areas like lobbies, restrooms, and elevators are a shared cost by all tenants. The price will usually depend on the portion of leased space.
5. Management Fees
Many landlords contract with property management companies due to the extensive commitment management services take. 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 the owner and tenants. Tenants usually share the cost of management services.
6. Parking Areas
The property might have a surface parking lot or 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 and shared by tenants.
7. Administrative & Maintenance Fees
Although many leases may outline the CAM fees in detail, some might only list a generic “Administrative Fee” or “Maintenance Fee.” Ask the landlord to elaborate if the lease doesn’t clearly spell out the specific charges. CAM fees could be paying for anything – permits, legal costs, advertising, signage, or general expenses.
Tenants should not pay expenses like the owner’s income tax filing fees, costs associated with rent collection, or other services that benefit the owner(s) solely.
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.
CAM fees may be calculated differently depending on the lease type or the way the owner conducts the fees, however, a general calculation method can estimate the cost of charges.
Calculating CAM charges are relatively straightforward and take three steps:
- Step #1: First, find out the property’s gross leasable area (GLA) or the total square footage of rentable space in the property. Usually, the leasing agent has this information.
- Step #2: Next, tenants calculate the total square on their specific lease. The leasing agent, information online, or marketing materials usually hold this number.
- Step #3: Lastly, divide the square footage of the space in the lease by the GLA. The resulting figure will be the percentage portion of the total CAM fees.
The Variable Cost of Common Area Maintenance
CAM costs vary depending on the type of property and the type of lease. Leased space in an office building calls for numerous shared costs with other tenants. On the other hand, specific retail centers and office parks don’t share amenities like lobbies or elevators, they share parking, sidewalks, landscaping, and other amenities, which may be a shared cost.
Before signing a commercial lease, tenants should find out exactly what the CAM fees do and do not include.
At Lumicre, our expert staff is skilled in helping prospective and current tenants navigate a commercial lease. We can help protect your business from unnecessary CAM costs and negotiate fair terms. Contact us today to learn more about our leasing services.
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