Common Area Maintenance Fees in Commercial Leasing
When you lease commercial space you pay for more than just the actual square footage you will occupy. In many commercial leases, and in particular retail and industrial space leases, extra fees are often referred to as "Common Area Maintenance" (CAM) fees. In non-industrial spaces, you may hear this expense referred to as "Load Factor," which includes CAM fees.
There are two basic calculations for CAM fees: Variable CAM fees, in which the amount a tenant is required to contribute increases based on a number of factors; and flat CAM fees where the fees are a fixed amount.
CAM fees may be paid monthly, quarterly, annually, or even charged from time-to-time as major repairs to the building or entire business/industrial park are required.
CAM fees can escalate at a different rate than the monthly lease rate because they tend to be more variable. So it is also important that your lease differential between "variable" and "fixed" CAM fees and include some sort of cap, or, maximum your CAM fees can be increased each year. This rate of increase should be a separate consideration from how much you basic rent increases each year.
Most Definitions of CAM Fees Are Misleading and Too Narrow
There are many online definitions of CAM fees that define CAM fees as a tenant sharing a portion of the direct costs of maintaining very specific common areas. These oversimplified definitions are not entirely accurate and a landlord may include many indirect costs as CAM fees that are not so obvious. This practice has been hotly debated among industry professionals as to whether or not this is ethical, or even legal. In short, you should never sign a lease without understanding what CAM fees cover in your unique commercial lease.
The Purpose of CAM Fees: What Are CAM Fees for?
Both CAM and Load Factor fees serve the same basic purpose: To require tenants to help cover the landlord’s direct expenses for “common areas.” Common areas can include both internal (hallways, elevators, lobbies, public bathrooms, etc.) and external expenses (parking lots, landscaped areas, etc.).
Be sure to have listed in the lease exactly what your CAM fees will cover, how often they are to be paid, and how much they can be increased each year. If you will be required to help with the cost of major renovations like parking lot repaving, or any type of structural repairs get it in writing. Have the landlord list when these repairs we last made and when they are scheduled or anticipated to be done in the future.
Not all landlords will require tenants to help with expenses like roofing, parking lot maintenance, and structural repairs and there really is no “standard” that applies to leases so do not rely on simply seeing “CAM fees” in your lease – be sure CAM fees are explained.
A landlord may include a wide range of expenses simply listed as “CAM Fees” or “Administrative Fees” on the basis that these are expenses the landlord pays for the benefit of all tenants. If CAM fees are not clearly listed or explained in a lease, be sure to specifically ask if you are paying for any of the following:
- Security systems or salaries or other costs associated with on-site security personnel.
- Permits, taxes, insurance, or any legal costs.
- Advertising, signs, or other general overhead expenses incurred by the landlord for operating or promoting the building (i.e., salaries or benefits for on-site or even off-site employees).
- Repair and renovations of the property maintenance of the property, including landscaping additions or redesigns, exterior painting, exterior or parking lot lighting fixtures, paving or resurfacing, roofing, or repairs and upgrades to central plumbing, electrical, sewer, and HVAC systems.
- Utilities, rent, or any other costs of maintaining separate leasing office spaces either on- or off-site.
Why it is Important to Understand Exactly What CAM Fees Are Listed in Your Commercial Lease
In 1989, I rented industrial space to open a craft consignment and hobby store. The park appeared to be in good condition and the landlord was a friend of the family and cut the rent by a third as a courtesy. This was the first industrial lease I had signed and did not fully appreciate the power of CAM fees. In other words, I signed a binding legal document without a clue as to what I was signing.
I did not know what a Triple Net Lease was, only that I should avoid signing one. I asked the landlord what type of lease I was about to sign and never once did I hear the term "Triple Net." Instead, I was told my lease had CAM and administrative fees. What I did not realize at the time was that the administrative fees included taxes, insurance and a whole host of other very expensive costs.
Only one month into the lease, the park owner began extensive park renovations including redesigning the front units to appear more like retail space. Signs were changed, the building was repainted, and some structural changes were made to the front of the industrial park.
The bill was divided among all tenants, and although I had a very small unit, I was stuck with a $5,000 bill - my portion of the park upgrades even though my unit was on the side and in no way benefited directly from any of the improvements. Other tenants were hit with nearly $20,000 in renovation fees. Had I read the lease more carefully, I would have known enough to at least ask if any upgrades were scheduled in the near future and to see that what I thought was a simple lease, was actually a Triple Net Lease in disguise.
Summary of CAM Fees
- CAM is an acronym for "Common Area Maintenance."
- CAM expenses are allocated to tenants on a pro rata basis: the more square footage a tenant rents, the greater percentage of CAM expenses it must pay.
- CAM fees are paid by the tenant (lessee) to the owner (lessor) to help cover the cost of overhead and operating expenses and landlords may try to include a wide variety of their expenses as CAM fees.
- Common areas generally include space accessed, used, benefited by, or shared by all tenants, and almost always include hallways, elevators and stairwells, lobbies, and public restrooms.
- CAM fees can also be charged for external spaces, like sidewalks and parking lots, and, in some cases, even for off-site facilities.
- Administrative fees may be charged, based on a percentage of the CAM fee rate, for operating and maintenance costs associated with non-common areas or salaries - things that are not truly common expenses and expenses most tenants will object to contributing to.
- Not all landlords charge CAM fees, but most still do, especially in commercial industrial space and retail leases.
- No matter what a landlord calls fees, if you are paying for maintenance, taxes, and insurance, your lease is a Triple Net Lease - the least favorable of all leases for tenants.