What does CAM in real estate mean?
CAM stands for common area maintenance, and CAM charges often appear in commercial leases for spaces in multi-tenant business parks. They are monthly fees that cover the costs of various maintenance needs for the building and/or parking lot. When you lease commercial business spaces, you lease a small portion of the property along with other tenants. Each tenant is required to maintain the interior of their space and pay their percentage of monthly CAM charges.
Some CAM charges may include:
- Property maintenance
- Administrative fees
- Pest control services
- Security services
The landlord maintains the common areas of a property using the CAM fees they collect each month.
Common area maintenance charges may also be anything the landlord and tenant agree to on the CAM charges section of the lease. A well-written lease with accurate CAM calculations helps the tenant and the landlord to understand what they are responsible for. The lease should clearly list each charge covered by the CAM fee and be verifiable by the tenant.
Types of CAM structures
Each landlord and tenant situation is different, and landlords may use different CAM structures depending on their expenses and how long they have owned the property. Here are four types of CAM structures:
- Fixed CAM: The monthly CAM charged doesn’t change and there is no year-end audit or rate adjustment.
- Year-Over-Base cumulative cap: The CAM expenses increase yearly based on projected expenses on a cumulative basis.
- Year-Over-Year cap: This cap on CAM expenses is based on the lesser of the prior year’s expenses or cap favoring the tenants.
- Year-Over-Base compounding cap: The first year base remains the same, but each year the cap percentage increases at a compounding rate favoring the landlords.
How are CAM charges calculated?
CAM structures are calculated on a pro-rata basis. This means the more square footage a tenant leases, the more CAM expenses they are expected to pay. The expenses correspond with the percentage of the property your space takes up such as 10% or 45% of the total property space. For example, if a tenant takes up 30% of the property space and the landlord pays $3,000 in expenses per month for the property, you can expect to pay 30% of their total monthly expenses.
Here is how you may calculate CAM charges:
First, determine the gross leasable area or square footage of the property. Next, assess the square footage taken up by the tenant. Once you determine the tenant’s square footage, you divide it by the gross leasable area. If the tenant leases 30,000 sq ft and the gross leasable area is 100,000 sq ft then the equation may look similar to this:
30,000 / 100,000 = 0.3 x 100 = 30%
This means a tenant is responsible for 30% of the CAM fees for the property. If the total monthly property expenses equal $3,000, then the dollar amount is calculated using the following equation:
$3,000 x .3 = $900
Therefore, the tenant should pay $900 per month in CAM fees.
Here are some tips that may help you understand CAM charges better:
- Research CAM structures. Learn all you can about CAM structures, and determine which structure works best for your business and operating expenses. Try discussing CAM with a real estate agent or lawyer and ask them questions you may have before you sign the lease.
- Negotiate. Many landlords are open to negotiation regarding CAM charges. Provide the landlord with CAM figures that you believe are appropriate for you to pay and ask them to meet you in the middle.
- Verify square footage. Check the square footage in your space to verify that the number the landlord has provided you with is correct. The CAM charge is developed according to your square footage and inaccurate numbers can cause you to pay more money to the landlord than necessary.
- Ensure that the calculations are valid. Calculate the CAM charges yourself before you sign the lease and agree to the fees. If needed, send the charge amounts to your accountant or real estate agent for calculation.
- Maintain records and reports. Keep records of each CAM fee you have paid, and keep a list of the itemized CAM you pay for.
- Establish a cap amount. Some landlords may let you set your own cap amount. Discuss a fair amount you are not willing to pay if the common area maintenance costs exceed that number.
CAM real estate FAQs
Here are some frequently asked questions about CAM in real estate:
Where are CAM expenses in a commercial lease?
You can find CAM expenses in the lease abstract portion of a commercial lease. Lease abstracts are summaries of individual leases that outline things such as renewal rights, rent increases, parking and CAM charges.
Are CAM expenses reassessed each year?
Landlords typically reconcile or reassess CAM charges either monthly or quarterly to make sure tenants are paying the right amount since they estimate CAM charges for the year.
What types of commercial real estate properties use CAM charges?
The commercial real estate properties that are charged CAM expenses include:
- Retail space
- Office space
- Industrial space
What are some things that are excluded from CAM expenses?
Some items that are excluded from CAM expenses are the replacement or improvement of:
- Parking areas
- Landscaped areas
- Loading and unloading areas
- Trash areas
- Exterior walls
- Irrigation systems
- Common area lighting
- Fences and gates
- Tenant directories and exterior signs