Although there are many standard terms in commercial lease agreement, terms such as Common Area Maintenance (“CAM”) and many others are negotiable and can help the parties to the lease agreement avoid unexpected future costs or liabilities.
CAM fees are typically added onto the base rent paid by the tenant (in addition to taxes and insurance) and are the expenses associated with the maintenance of the property which may include, landscaping, janitorial and security services, snow removal, and repairs such as light fixtures, elevators, sidewalks, etc. It is important to negotiate CAM charges on the front end of the lease, as these expenses can change dramatically over the life of the lease and make-or-break the economics of the deal for both landlord and tenant.
CAM Expenses that Should Raise a Red Flag
Whether a charge is properly considered “CAM” or whether it is actually an “ownership” expense should be evaluated before the lease is signed or extended. One way to evaluate whether a charge is actually CAM is to determine whether the expense is incurred for the tenant’s common good versus capital expenditures which enhance the landlord’s property as a whole, such as additions or renovations to the property. Tenants should be wary of expenses that don’t directly or indirectly benefit them, such as: roof repair and replacement, building foundation, exterior walls, HVAC, plumbing, green cost allocation, or management fees.
How to Minimize CAM Charges
There are many ways a tenant can minimize CAM charges during lease negotiations. One option is for the tenant to negotiate a cap on annual CAM increases so that the tenant can budget their “total” rent costs throughout the lease term. Another option is for the tenant to negotiate a fixed dollar amount to be paid toward CAM for each year of the lease, which can include an agreed-upon increase to the fixed dollar amount annually that is not tied directly to the increases in the landlord’s costs from year to year. Stated exclusions to CAM charges (such as capital expenditures) or a limit to the amount of actual capital improvement dollars that will be charged in any given year can also serve to significantly decrease CAM charges over the lease term.
CAM Audit Rights
Another important negotiated term is whether the tenant will have the ability to audit or examine the books and records of the landlord that support the CAM charges. This is most useful to a tenant if there is a discrepancy between actual and assessed CAM charges. This provides a simple way for a tenant to find out the details behind the CAM charges and ensure that they are in compliance with the lease provisions.
Need Help with Your Commercial Lease Negotiation?
Are you a commercial tenant and have questions regarding CAM charges or other clauses in your lease or prospective lease? If so, you can contact the Thomas Law Office and we would be happy to discuss your specific situation with you.