How Common Area Maintenance Charges Affect Rent?

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When discussing commercial real estate, common area maintenance (CAM) charges often come to mind. They are almost always included in a typical commercial lease and include a specific amount that needs to be paid by either the landlord or the tenant, or maybe both.

All in all, CAM charges are a vital part of every commercial lease, which makes learning everything about them essential for you. In this piece, we wanted to tell you what they are and how they work, but most importantly, we wanted to explain how they affect the rent.

What Are Common Area Maintenance Charges and How Do They Affect the Rent?

When it comes to most commercial properties, several things affect the rent and the overall amount the tenant pays. One of these is CAM charges, and these include almost all maintenance costs that go with the property. Someone has to pay them, and in most cases, landlords assign a specific percentage of the overall CAM charges to the tenant, making that percentage typically tied to the percentage of the space the tenant occupies vs. the entire building square footage.

The unfortunate truth with CAM charges is the fact that this is a general term that includes a wide variety of expenses in non-industrial properties. What’s more, everything that’s included in the CAM charges varies from lease to lease. In essence, there is no universal agreement in the commercial real estate industry that states which exact expenses are considered CAM charges. However, CAM charges are almost always considered as “Rent” in a commercial lease, and therefore non-payment may lead to late fees, or eviction.

Because of this, the landlords benefit from CAM charges the most. They have plenty of room to include a wide variety of expenses into the overall CAM charges for their property and assign most of them to the tenant. For that reason, every tenant needs to take a good look at what the CAM charges are for the property they are considering to lease. Many times, these fees and what is included in them can be negotiated ahead of time with specific charges “carved out” of the reimbursable expenses. Also, every landlord should make sure they only include a reasonable part of the costs in the tenant’s responsibilities if they want well-qualified tenants to consider their property.

In most cases, CAM charges include some, or all, of the following:

Now, as for the central question of how CAM charges affect the rent, the answer is never the same. That’s because it all depends on which expenses exist in the specific commercial property, which are assigned to the tenant, and which are assigned to the landlord. Another factor is what type of lease it is, is it a Full Service Gross, Modified Gross, or Triple Net lease?

Before any commercial lease is signed, the landlord and the tenant need to discuss the CAM fees and which ones will be paid by whom. It’s important that the final allotment of CAM charges is fair for both the landlord and the tenant. That’s because CAM charges can be a massive burden on one side (usually the tenant) as they tend to be quite substantial when assigned to only one party.

If you want the lease and your relationship with the other party to be successful, the final deal needs to be fair. And if you want to learn more, feel free to reach me at joe@joekillinger.co

Written by

Entrepreneur-Investor-Founder. Posting tips and insights from my experiences in real estate, investing & entrepreneurship- https://www.joekillinger.co/

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