How to Negotiate CAM Fees in Commercial Leases
Never accept the terms of any lease without negotiating terms
The larger the commercial space you rent, the more likely you will be able to negotiate CAM (Common Area Maintenance) fees and any associated administrative fees. However, no matter how small the space, never accept the terms of any lease without asking for a better deal.
In a cautionary statement about the difficulty of breaking into the commercial real estate industry, CFO Magazine reporter, Laura DeMars, clearly indicates that even real estate professionals may have a hard time understanding the complexities of CAM fees; “The complexity of the industry makes it tough to break into…” DeMars further states:
“At shopping centers, for instance, tenants usually pay for the upkeep of the building through a common-area maintenance (CAM) fee. While a CFO of a property-management firm doesn't directly manage the tenants, he still needs to understand how those fees are collected … more important, since large retailers often dispute CAM fees or pay only a percentage … the CFO must know how to account for the difference, or CAM slippage.”
Before you attempt to negotiate CAM or Administrative Fees, be sure that you understand what they are. If CAM fees are a complicated issue for CFO’s, you better go in prepared!
Industry Standard CAM Fees
Because the condition of certain common areas has a direct effect on tenants, fees associated with the costs of maintenance and repair of hallways, elevators, stairwells, lobbies, and common area restrooms are fairly standard in CAM fees. Also typically assessed to tenants in CAM fees are costs associated with parking lot maintenance (including lighting and landscaping), and sidewalks.
Tips on Negotiating Standard CAM Fees
If the type of fees you are being asked to pay are non-negotiable, make sure your lease specifically permits you to review the landlord’s bills. Business is business, and this should not be seen as a distrust of a landlord or something personal, but paying unknown fees simply in good faith is not good business. Requiring a statement in the least that the landlord has to provide documentation (accountability) for all fees charged is the only way to ensure you are being charged fairly.
You should also negotiate how much CAM fees can increase each year – putting a maximum amount or percentage. This “cap” should be listed separately from any other rent increases.
Operations and Management (O&M) Administrative Fees
If your lease requires you to pay CAM fees for any operational or management costs – immediately object to such costs. If the landlord insists, ask to see a list (proof) of these costs and how your share has been calculated. These fees may not actually be called CAM fees, but “Administrative Fees.” Administrative fees are still CAM fees – the landlord is trying to get you to contribute to his/her own costs. Administrative fees are usually based on a percent of the total CAM costs.
Tips on Negotiating O&M Administrative Fees
Most tenants will object to operational and management fees because the landlord is already making income off the rent being charged even without CAM fees. If your CAM fee includes salaries for management or administrative staff (on- or off-site), liability insurance costs (you will have to pay for your own liability insurance – the landlord will require this before you can move in), advertising and other promotional activities, professional services such as legal or accounting services, try to negotiate these out of your lease.
According to Rosie Rees, “The Battle Over CAM Charges,” Retail Traffic Magazine; “Savvy tenants will reduce the percentage (which ranges from 25% to 5%), and exclude non-maintenance-type costs from the calculation (e.g., taxes, insurance, utilities).”
Rees also believes that maintenance and repair costs related to the buildings (i.e., roofs, building foundations, and exterior walls) should not be absorbed by tenants as these are not common areas used by the tenants or their customers. Rees accurately points out; “The landlord already gets income from those buildings in the form of rent. Any costs of maintaining and replacing them should be paid by the landlord out of rental income.”