Understanding Commercial Lease Terms: The CAM Fee
Lease Term: Understanding the CAM Fee
It's important to understand exactly what you're paying for when you sign any commercial lease. Common area maintenance fees (CAM fees) are fairly common in commercial leases, but their terms can vary considerably. Be sure to ask questions about what's included in all fees that are padded into rent under the terms of your lease, and find out how those fees might increase each year. Some leases might cap rent increases to a reasonable percentage, but CAM fees might go up at a different percentage rate.
Knowing what you'll be responsible for paying during each year of your lease will help you make better long-term decisions about whether a particular space will still be affordable in subsequent years, even if it seems like a good fit now.
What Is 'CAM'?
Many commercial real estate leases require that the tenant or lessee pay a portion of CAM fees. There are two basic calculations for CAM fees: variable CAM fees, in which the amount a tenant is required to contribute increases based on a number of factors, and flat CAM fees, where the fees are a fixed amount. The term is typically used in conjunction with the leasing of retail and industrial spaces. You might also hear CAM fees referred to as a "load factor" when they're combined with other fees.
What Do CAM Fees Cover?
CAM fees vary considerably and cover a wide range of expenses that landlords must pay to keep the premises up and running.
They might include repairs, insurance, property maintenance, and sometimes even the salaries of administrative staff when those employees contribute to running a business park. These salaries might be tagged as "administrative fees."
How Are CAM Fees Calculated?
CAM expenses are typically calculated on a pro-rata basis.
In simplest terms, the more leased square footage a tenant has, the greater the percentage of CAM expenses he'll pay. Fees correspond with how much of the building's total square footage you're leasing, whether it be 10 percent or 50 percent. If you occupy 50 percent of the premises, the landlord's expenses run $4,000 a month, and your CAM fees are variable, you can expect to pay $2,000 a month or half the overall expenses. It can be a very significant add-on.
Is This Legal?
The concept of CAM fees is typically legal, but remember that terms can differ a great deal from one lease to the next. The practice isn't widely accepted and embraced by industry professionals for this reason. You need to understand exactly what costs you'll be contributing to, and you'll want to ask for an itemization of those costs in writing. Make sure they stay within the lines of legality and consult an attorney who's well versed in commercial real estate law if you have any doubts. No blanket CAM definition specifies which costs can be included and which cannot. The frequency of payments can be an issue as well.
CAM fees can be complicated and expensive, so it's always advisable to have an attorney review any lease that includes CAM requirements or any other special fee, even if you're pretty sure you understand the terms.