Common area maintenance charges

Common Area Maintenance charges, or CAM for short, are one of the net charges billed to tenants in a commercial triple net (NNN) lease, and are paid by tenants to the landlord of a commercial property. A CAM charge is an additional rent, charged on top of base rent, and is mainly composed of maintenance fees for work performed on the common area of a property.

Each tenant pays their pro rata share of a property's total CAM charges, which prorated share is the percentage of the tenant's rented square footage of the total, rentable square footage of the property.

A common example of a CAM item is the cost of cleaning the walkways in a shopping mall. It is assumed that every tenant benefits from a clean environment, and should share in that cost. An example of a CAM that is charged to only a subset of tenants might be the charges for cleaning the food court area, where all of the vendors in the court collectively cover the higher cost of cleaning the tables on a frequent schedule.

Landlord and Tenant negotiate CAM charges before signing the lease, so the charges vary from lease to lease, and operating costs that can be billed as CAM charges by the landlord vary from tenant to tenant. Generally, landlords want CAM charges defined so broadly that they can pass through a majority of their operating expenses to tenants. The tenant generally wants CAM charges defined narrowly in hopes that the landlord pays a majority of the operating costs.

Examples of services often billed to tenants as CAM charges include portering, parking lot striping, parking lot lighting, and landscaping. CAM charges can be broken into two subcategories—controllable and uncontrollable. Uncontrollable CAM charges are security costs, utilities, and snow removal expenses. All other expenses charged as a CAM charge are considered controllable.

In certain leases, CAM charges also consists of administrative and management fees. Administrative fees are a negotiated percentage of all costs of operating and maintaining a property. Management fees are a percentage of gross rents collected, which percentage is defined in the management agreement between the management company and ownership of the property.

CAM charges are subject to wide variations as tenants move in and out and various inflationary items occur. This can make it difficult for both the tenant and landlord to predict their future cash flows with any accuracy. To address this, some leases include "cap" and "floor" terms which limit these changes to fixed values on a year-over-year basis.

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