Common Area Maintenance or "CAM" fees are charges incurred in a commercial lease. CAM is paid by a tenant to their landlord. CAM is charged on top of the basic rent and covers maintenance expenses incurred for work on the common area of a property. For example, in an office park, the tenants will pay CAM for the gardening on the office park.

The exact scope of CAM fees can vary greatly between individual lease agreements; in general, landlords attempt to negotiate for a broader interpretation of CAM fees in order to reduce their risk exposure, while tenants typically try to narrow the interpretation to reduce their monthly expenses.

Just like a rent escalation clause stipulates that commercial rents will rise by a certain percentage each year, many lease agreements state that CAM charges will increase by a specific amount (i.e. 3%) per year. In other cases, CAM fees are actually tied directly to operating costs (instead of just an estimation). However, to protect tenants, there is often a price cap (also referred to as a price ceiling) that limits the maximum amount CAM charges can increase in one year.

For example, a commercial could state that CAM fee increases would be capped at 5% per year. On the other hand, CAM fees may also have price floors in order to protect property owners. Therefore, even if actual CAM expenses remain the same (or even fall), tenants may still be responsible for paying their base CAM fees plus the 3% annual increase. This is justified by the fact that, while CAM expenses may not increase in one specific year, they could increase significantly in upcoming years.

CAM fees in commercial real estate are typically calculated by taking the tenant's rented square footage in relation to the total rentable square footage of the property. For example, if the tenant rents 1,200 sq. meters of office space; the total rentable space is 20,000 sq. meters; and the CAM fees total $18,000, the tenant is typically responsible for only 6% (1200/20000) of the CAM expenses which would equate to $1,080 (6% of $18,000).

CAM charges can be either fixed or variable. It is recommended that a tenant get an expert opinion from a lawyer to be well informed on how the charges will affect their business in the long term.

Source: www.commercialrealestate.loans/commercial-real-estate-glossary/common-area-maintenance-fees

CAM fees in commercial real estate can benefit both the tenant and the landlord. For the tenant, CAM fees can reduce their monthly expenses by narrowing the interpretation of the CAM fees. For the landlord, CAM fees can reduce their risk exposure by negotiating for a broader interpretation of the CAM fees. Additionally, CAM recoveries represent the difference between actual CAM expenses and the CAM expenses that have been billed to the tenant over the prior 12 month period, which can benefit either the tenant or the landlord depending on the actual vs. charged expenses.

Sources:

• www.commercialrealestate.loans/commercial-real-estate-glossary/common-area-maintenance-fees

The main drawback of CAM fees in commercial real estate is that they can be difficult to predict and can increase significantly from year to year. This can be especially problematic for tenants who are on a tight budget and cannot afford to pay for unexpected increases in CAM fees. Additionally, landlords may attempt to negotiate for a broader interpretation of CAM fees in order to reduce their risk exposure, while tenants typically try to narrow the interpretation to reduce their monthly expenses.

In some cases, CAM fees are tied directly to operating costs, which can be difficult to predict. Furthermore, CAM fees may also have price floors in order to protect property owners, meaning that tenants may still be responsible for paying their base CAM fees plus the 3% annual increase even if actual CAM expenses remain the same (or even fall).

The best practices for managing CAM fees in commercial real estate depend on the individual lease agreement. Generally, landlords should attempt to negotiate for a broader interpretation of CAM fees in order to reduce their risk exposure, while tenants should try to narrow the interpretation to reduce their monthly expenses. Additionally, it is common for lease agreements to include a price cap (or price ceiling) that limits the maximum amount CAM charges can increase in one year. This helps to protect tenants from large increases in CAM fees. Price floors may also be included in order to protect property owners. This ensures that tenants are responsible for paying their base CAM fees plus the agreed-upon annual increase, even if actual CAM expenses remain the same or even fall.