Explaining CAM Charges in Commercial Leases
Explaining CAM Charges in Commercial Leases
Understanding CAM charges allows property managers to estimate and budget their leasing expenditures more precisely. This helps to better anticipate and plan for the financial impact on the business if you understand how CAM charges are determined and what expenses they cover. It also allows you to make informed decisions and connect your budget with the future costs of maintaining the shared sections of your rented property.
An Overview of CAM Charges
Common area maintenance charges (CAM) are fees tenants pay landlords to settle overhead and running costs for common areas; these amenities are utilized by or benefit all tenants. CAM expenses are often cited in the lease to eliminate any doubt regarding what they comprise. In a commercial triple net (NNN) lease, tenants are responsible for paying CAM fees to the landlord of a business property. These fees are included in the net charges that renters must pay.
CAM fees cover any expenses associated with running and maintaining a commercial property. They differ from market to market and locally from one landlord to another. Examples of items that may be charged under CAM fees include:
- Maintenance of parking lots, including crack sealing, crack treatment, and resurfacing
- Gardening and lawn care
- Removing snow
- Lighting for common areas like parking lots
Types of CAM Charges
The common area maintenance varies based on the type of lease signed and the actual expenses the landlord determines. There are two categories of CAM charges in commercial leases:
Controllable CAM charges are expenses over which the property owner has direct authority, such as payroll or commercial real estate management. Examples of controlled CAM expenses include janitorial, grounds upkeep, and security costs. The specific CAM expenses a tenant must bear are discussed in the lease agreement. CAM charges are projected at the beginning of the year, while the actual common area maintenance charges for the year are computed at the end.
CAM charges can vary greatly, making it difficult for landlords to estimate their future revenue flows accurately. To address this, some leases include “floor” and “cap” clauses that limit yearly changes to predetermined sums.
These costs include those over which the landlord or property manager of a commercial real estate property has no power, such as taxes, insurance, utilities, and snow removal.
The expected cost of CAM is determined at the beginning of the year, but the actual cost is determined at the year’s end. The tenant is responsible for covering any charges that were higher than what was anticipated. The landlord must credit the renter with the overpaid amount if the final tally exceeds the tenant’s payment. The term “common area maintenance reconciliation” refers to this procedure.
Calculation of CAM Charges
CAM fees are commonly calculated and distributed among tenants as follows:
Method of Pro-Rata Distribution
This is the most widely used technique for computing CAM expenses. It entails assigning costs to each tenant based on their pro-rata share of the property’s total square footage. The lessee’s pro-rata share is computed by dividing the tenant’s square footage by the total square footage of the building. Each tenant then contributes to the property’s expenses in proportion to the space they occupy.
Rentable Area Technique
This method includes calculating each tenant’s share by dividing the rentable area of their premises by the total rentable area. This method is less popular than the pro-rata share method.
Estimated Cost Method
Landlords may charge renters estimated CAM fees in addition to rent each month. Estimated costs are often based on CAM charges from the previous year. Tenants pay the difference if CAM reconciliation reveals that the estimate undercharged them. If the forecast overcharges tenants, the landlord pays the difference or gives tenants rent credit for the overcharge.
CAM fees are essential in commercial real estate as they enable property managers to correctly estimate their lease costs, assess the fairness of expenses, and offer meaningful advice to their tenants. Understanding CAM costs allows for efficiently managing financial commitments and assists tenants in making informed decisions in the fast-paced world of commercial real estate.
Using the UnitConnect commercial real estate software to automate and streamline the calculation and tracking of CAM charges makes the process more efficient and precise.