Common Area Maintenance Charges (CAM) Explained

Posted by Lee Sterling | Posted in Carlsbad, Economics, Landlord-Tenant, Legal, Negotiation, North County, Office, Real Estate | Posted on 11-08-2012

 

This is a follow-up to a brief talk I gave to the Business Resource Committee of the Carlsbad Chamber of Commerce about the difference between Rentable Square Feet and the Usable Area of a building and the impact of the Load Factor on evaluating the cost of renting one commercial space compared to renting another  space in a different building.  Because of the Load Factor, the usable sq. ft. of the tenant’s space is lower than the rentable sq. ft. charged to the tenant.    I briefly mentioned the impact of CAM charges on that evaluation. This follow-up is so that I can point out some things that a tenant needs to keep in mind when evaluating CAM charges and the lease the tenant may be considering.

PRO RATA SHARE

This is another time that the Rentable Sq.Ft. and Usable Area are important for the tenant to evaluate. The ratio between the tenant’s Rentable Sq.Ft. and Usable Area results in the percentage of the CAM charges that are going to be paid by the tenant. If the Usable Area in a building is 100,000 sq. ft. and the tenant’s rentable sq. ft. is 10,000, the tenant would be charged with paying 10% of the CAM charges as the tenant’s pro rate share.

WHAT OPERATING EXPENSES

Unfortunately, some landlords have tried to use CAM charges as another profit center! It’s important for the tenant to review what is going to be included in the CAM charges. They should not include capital charges, upgrading to comply with laws, or repairs and maintenance,  which are topics we’ll cover in another blog post.  A good way to evaluate the CAM charges is to request the records for the last three years of the CAM charges. That will allow the tenant to see what kind of increases have been charged to existing tenants.

THE BASE YEAR

If a tenant enters into a gross lease (in which the landlord includes all expenses in the base rent for the first year) the tenant has to make sure that it is not charged for any expenses during that base year. In evaluating expenses, it’s also important to make sure that expenses are “grossed up,” which is another topic to be covered in a separate blog post.

COMPARISON TO OTHER PROVISIONS

The tenant should always check the CAM charge provision against the repairs and maintenance provision, the real property clause, and the compliance with laws provision to make sure that the landlord doesn’t try to include any of those costs in the CAM charges that the landlord may have agreed to pay in these other provisions.

WRAP UP

These are just a few hints on evaluating the CAM charges provision of a proposed lease. It’s important for the tenant to have a good broker helping to evaluate the lease, and to have the lease reviewed by a competent licensed real estate attorney.

 

Lee Sterling is a retired Colorado real estate attorney  and California real estate broker working with commercial tenants looking for space to buy or lease. He can be reached at 760-230-1492 and at lee@leesterling.com    

DRE Lic.# 01319489

 

 

 

 

 

 

 

Write a Comment

You must be logged in to post a comment.