What Is Common Area Maintenance (CAM)?
Common Area Maintenance Fees in Commercial Leases Explained
Negotiating a lease for your business can be a difficult process and if you haven’t done this before, you will see many new, potentially confusing terms. One term that often stumps lessees is common area maintenance, the fees that tenants pay in commercial leases for areas that are common to all tenants.
What Is Common Area Maintenance?
Common area maintenance (CAM) is the cost your business pays for the areas in a commercial building that are common to all tenants. Look at it this way: When you lease a commercial building, you are paying for two separate areas, the usable area and the common area.
Usable area is the space you are leasing, meaning the square footage in a building that you specifically use as a tenant. This area can include restrooms within the space, closets, break rooms, and a reception area, in addition to individual offices or other facilities your business needs.
Common areas of the building are outside your leased space, but available to you and other tenants. These areas include common restrooms, lobbies, walkways, parking lots, and landscaping. The common area in a multi-story building might include elevators, electrical rooms, and public corridors.
Sometimes the term “rentable building area” or “gross building area” is used to include the leased space plus the common areas.
How Does Common Area Maintenance Work?
CAM fees are part of the terms in a commercial real estate lease agreement, so it’s important to understand how they work.
Typical Fees in a Common Area
The CAM fee you pay is for the upkeep of these common areas, including maintenance, repairs, and operating costs like snow removal and landscaping. Other common areas covered by CAM fees include the roof, structural elements, walkways, and common restrooms.
Other Costs Included in CAM Fees
Look for other CAM costs in your lease agreement. All of these costs must be paid by either the landlord/property manager or the tenant.
- Security systems or salaries of security personnel
- Permits, taxes, insurance, or any legal costs
- Advertising, signs, or other operating expenses
- Utilities, rent, or costs of maintaining a separate leasing office space
CAM costs are usually quoted on a per-square-footage (pro-rata) basis, shown as a fraction:
Leasable floor area
Some or all of leased or leasable floor area in the building, strip mall, or shopping center
For example, if the total leasable square footage of the building is 250,000 sq. ft. and your office space is 15,000 sq. ft., you must pay 6% of the total cost of your lease as a CAM fee.
Common Area Maintenance in Your Lease Agreement
A commercial lease agreement will also include several sections that refer to common areas and CAM fees.
- A list and description of all common areas
- A statement that CAM areas are under the exclusive control of the management
- A statement that the landlord will keep all common areas in good repair and condition and in a manner consistent with comparable buildings in the surrounding area
- A statement by the landlord that it has unlimited access to common areas
- Rules for the use of common areas
- An allowance for rent abatement (reduction or stoppage) if you can’t use the premises or common areas as a result of casualty damage
CAM Payment Options in Commercial Leases
Commercial leases include other confusing terms that specify who pays what costs—the tenant or the landlord. You might see one of these terms, listed from having the landlord paying all costs to the tenant paying all costs.
- Gross (or Full Service) Lease: The tenant’s monthly payment includes everything, including all operating costs, taxes, and CAM costs.
- Modified Lease (or Gross): Expenses are divided between tenant and landlord (different for each lease).
- Net Lease: The tenant pays a share of operating expenses in addition to the stipulated rent.
- Triple Net Lease (sometimes called net-net-net or NNN): The tenant pays all of the operating expenses, taxes, and insurance. The landlord is responsible for the building, roof, and sometimes the parking lot.
The way these terms are used varies greatly for each circumstance. Look carefully at your specific lease document to see how the terms are defined and what’s included.
Negotiating CAM Costs
Some issues to consider when you are negotiating CAM costs in a commercial lease include additional fees, scope, and depreciation
Some landlords charge an administrative fee as a percentage of CAM costs. This cost is for accounting services, processing payments, etc. Some may also add third-party management fees, but these are basically the same thing. You shouldn’t have to pay for both.
Does the CAM fee include “maintenance” and “replacement,” and are these costs defined? Some landlords include replacements in CAM because they are less costly than continued maintenance, while tenants would argue that replacements are an extra cost.
Replacements of major systems, like a heating, ventilation, and air conditioning (HVAC) system, for example, are costs that the landlord can depreciate, and updating these systems improves the saleability of a property. So, it makes sense that the landlord—not the tenants—should pay for this.
Your ability to negotiate CAM costs depends on market conditions, your relative bargaining position with the landlord, and other factors. Get help from an attorney to navigate this process.