What are CAM Fees in Commercial Real Estate and How do They Affect Your Lease?
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.
How CAM Fees are Typically Calculated
Each tenant is expected to pay their pro rata share of CAM charges. The CAM charged
to each tenant is determined by 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:
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.
CAM Fees and Different Lease Types
Different types of commercial leases leave property and owners and tenants with different responsibilities when it comes to CAM fees. For example, gross leases are typically considered to be ‘all inclusive,’ meaning that the property owner is responsible for almost everything, so a tenant will usually not be responsible for paying CAM fees. On the other end of the spectrum, triple net (NNN) leases typically place responsibility for almost all costs with the tenant (except for structural repairs), meaning that a NNN lease tenant will need to pay their full share of CAM charges. Double net (NN) leases fall somewhere between these two extremes, which, in practice, means that a tenant will likely pay some degree of CAM fees, but not as much as a NNN tenant might.
CAM Fee Price Caps and Floors
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.
Also referred to as reconciliations or billbacks, 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. Depending the actual vs. charged expenses, CAM recovery can benefit either the tenant or the landlord.