What is CAM?
CAM stands for Common Area Maintenance and is also known as “Operating Expenses”. In a commercial lease, a CAM provision requires the tenant to pay their pro-rata share of the operating and maintenance expenses for the building or shopping center. This usually covers items such as building repairs, landscaping, parking lot maintenance, cleaning, security, administrative services, utilities, taxes, and insurance.
Items covered by common area maintenance differ for retail, office, and industrial properties. For example, electricity is usually included in office buildings because it is assumed that electric usage is pretty uniform across each office space. However, retail establishments will differ widely in their electricity usage depending on the type of business and hours of operation. A cell phone store would not be expected to pay the same amount as a 24-hour laundromat in the same complex. Therefore, retail spaces are usually metered separately.
How is CAM Calculated?
The property manager forecasts the annual operating expenses at the beginning of the year. The tenant’s share of operating expenses is calculated by dividing the tenant’s square footage by the gross leasable square footage in the building. At the end of the year, the property manager will reconcile the actual annual operating expenses. If you overpaid, you will get a credit. If you underpaid, you will receive a bill to make up the difference.
Before signing a commercial lease, ask for the history of the building’s CAM charges for the past few years. This will give you an idea of annual increases. Compare these costs to surrounding buildings to make sure they are reasonable. Like all parts of the lease, CAM is negotiable. Be careful if there is a provision in the lease that makes the landlord’s CAM determination final without allowing the tenant to review the calculations. Talk to your agent about options, and always be prepared to walk away should the lease be more than you budget for. Be wary of rental scams that have been on the rise
since the pandemic hit.