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. 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.
There are two basic calculations for CAM fees: variable CAM fees, where 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 when major repairs to the building or the 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. As a result, it is important that your lease spells out the difference between "variable" and "fixed" CAM fees and includes some sort of cap, or make it clear the maximum your CAM fees can be increased each year. This rate of increase should be a separate consideration from how much your basic rent increases each year.
Definitions: Narrow and Misleading
Many online definitions of CAM fees define them as fees for 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.
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.).
List exactly what your CAM fees will cover in the lease, 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. The landlord should list when these repairs were 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. 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 premise 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 onsite 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 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
Understand Exactly What CAM Fees Are Listed in Your Commercial Lease
Here is a cautionary tale to take note of. In 1989, a professional 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 renter's family and cut the rent by a third as a courtesy. Since this was the first industrial lease the renter had signed, they did not fully appreciate the power of CAM fees. In other words, they signed a binding legal document without a clue as to what they were signing.
They did not know what a Triple Net Lease was, only that they should avoid signing one. A Triple Net Lease is the least favorable of all leases for tenants; it requires you to pay for maintenance, taxes, and insurance. When the renter asked the landlord what type of lease they were about to sign, the landlord never mentioned the term "Triple Net." Instead, the landlord told the renter that their lease included CAM and administrative fees. What they 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 the renter had a very small unit, they were stuck with a $5,000 bill—their portion of the park upgrades, even though their 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 the renter read the lease more carefully, they would have known enough to at least ask if any upgrades were scheduled in the near future and to see that what they thought was a simple lease was actually a Triple Net Lease in disguise.