Understanding CAM Charges in Commercial Leases

While my primary practice is Intellectual Property law, I have reviewed and negotiated commercial leases on behalf of several clients. When discussing a lease with my clients, I make sure that the client understands whether and how Common Area Maintenance Charges, or “CAM”, charges are assessed. CAM charges function in a similar manner to an HOA fee that you may encounter when owning a condominium or covenant-controlled community. It is a charge passed on by the landlord to the tenant for costs incurred by the landlord in maintaining the common area of the property. Examples of CAM expenses include maintaining parking lots and snow removal.

CAM charges arise in the context of triple-net lease. If you have a triple-net lease, you most likely are required to pay property tax, building insurance and CAM charges. Typically, the client is assessed CAM charges based upon the percentage of space they occupy of the total property. The landlord will review the costs it incurred in maintaining the over-all property and allocate the expense to each tenant based on the percentage of space each occupies. When reviewing a lease, a tenant should confirm that it has the right to audit the CAM report. It would be best to ensure that that this right is explicitly stated, in order to avoid a situation where a less scrupulous landlord might refuse to permit inspection of CAM-related charges.

An additional consideration is whether the lease calls for monthly CAM escrow payments. When dealing with large commercial properties, CAM charges can run into the tens or hundreds of thousands of dollars. As a security, landlords will require tenants to contribute monthly payments towards the annual CAM expenses. At the end of the year, the landlord will calculate CAM charges for the year and any deficiency in the CAM escrow account shall be the responsibility of the tenant. Ensure that CAM reconciliations be conducted at least annually in order to ensure that an appropriate escrow amount is charged. After all, neither tenant nor landlord would be pleased to learn that the CAM escrow was underfunded by tens of thousands of dollars.

CAM is not likely to be applicable where the tenant is subject to a single-net, double-net or gross lease. However, as one colleague related today, just because your lease is not a triple-net lease, be on the look out for landlords who pass along CAM charges anyway. The point of the story is not that landlords are trying to rip off the tenant, but that, particularly in the situation where the landlord has transferred the lease to a new landlord, the new landlord may assume that it may pass on CAM charges. The recommendation, as always, is to be vigilant when making rent payments, especially when you own multiple properties. Make sure that the person or group responsible for making rent payments understands the lease terms to ensure that you are not making overpayments.