Common Area Maintenance (CAM) charges can be confusing. They’re a term that refers to the money you pay the landlord to defray the cost of operating the common areas of the building. At the same time, though, the term common area can also refer to an area of the building on which you pay rent. And, to make things even more confusing, they overlap with operating expenses. Keep reading, and we’ll make sense of it.
What To Know About the Common Area
Regardless of what type of building you occupy, if it has more than one tenant, you can split it into two pieces. There are pieces that tenants like you occupy. And then there are pieces that everyone shares. The latter makes up the common area.
What’s a Common Area? What’s Maintenance?
Anything that you share with the other tenants — or that you don’t control within the demising walls of your suite — is a common area. While your office is your private area, the hallways and shared bathrooms on your floor are common areas. Your Internet connection is probably billed directly to you, so it’s private, but if the entire building shares the same water connection, that water connection is also part of the common areas. (This is why we talked about pieces of the building instead of specifically about spaces)
Maintenance is the cost of running the common areas of the building. It includes everything from the power bill to light the hallways to the insurance for the property to the cost of sweeping the parking lot. Usually, the landlord sets an annual budget for the maintenance and bills you every month, with a final true-up payment after the beginning of the next year.
Is Common Area Maintenance the Same Thing as Operating Expenses?
The operating expenses are the cost of operating the building. They include utilities, repairs, insurance, property tax, and management, among other things. Common Area Maintenance is similar but only applies to the cost of running shared features. CAMs also exclude property tax and insurance. This means that it’s common to hear your reimbursements described as “CAM, Tax and Insurance,” which is another way of saying that you’ll pay your share of the building’s entire operating expenses.
Why Do You Pay CAM?
Put as directly as possible, you pay CAM because your lease requires it. Under a full-service lease, landlords charge s set amount every month. They then use your full-service rent payment to pay the building’s operating expenses, their mortgage (if they have one), and then themselves or their investors. If the building’s expenses go up, the landlord has to absorb that cost, but if they go down, the landlord gets to keep the benefit.
In a lease where you pay CAM charges and other operating expenses, your rent gets separated from the cost of running the building. Since you are responsible for CAMs, you take on the risk of the building’s operating costs. If they go up, you pay more, and if they go down, you pay less. At the same time, the owner gets a set return on their invested capital in the form of your rent.
How Is CAM Determined?
Owners calculate the total common area maintenance charge by adding up all of the operating expenses for the building, their property taxes and insurance. Some leases also let them add a CAM admin fee, which is an extra collection on top of the CAM charges.
To determine how much you pay for CAMs, they find your pro-rata share of the building. While it’s important to read your lease carefully to understand exactly how these get calculated, the process generally starts by taking the total usable area of the building. Then, they divide that into the usable space of your suite. So, if you have 10,000 usable square feet out of a 200,000 usable square foot building, you have 5 percent of the building’s usable space. This means that your pro-rata share is 5 percent, and you will have to pay 5 percent of the building’s total CAM charges.
It’s hard to predict what CAMs will be in advance. For that reason, owners usually create a CAM budget at the beginning of the year. Then, they divide it by 12 and charge you your share every month. At the end of the year, they compare what they charge you to the actual costs and either send you a check for the difference if you overpaid or send you a bill if you underpaid. Then, it begins again for the next year.
What Can I Do About Common Area Maintenance Charges?
There isn’t a great deal that you can do about the CAM charges in your building. If you are a large chunk of the building, using the property’s resources more wisely could save you money in the long run, but other than that, your CAMs are generally what your owner charges. Pay careful attention to their math, though. to make sure that they’re only charging you for your fair share of the building. Opting for a full-service lease might save you money by protecting you from CAM exposure, but if an owner is taking that extra risk for you, he or she is likely to want to be compensated with a higher return.
How Can I Make Sure That My CAM Rate is Fair?
Other than carefully checking the numbers and, if necessary, having your landlord do an audit, you don’t have many ways to keep your owner honest once you’ve moved into the building. Before you move in, though, you and your tenant representative can do a great deal to protect you from unreasonable CAMs. Here are some strategies that may work for you in your market:
Research other buildings in the area to see how all of their CAMs line up. If a building has high rent and higher CAMs than others, it may be one to avoid.
Ask for a CAM history. If a building has a long history of flat or declining CAMs, you might be in for a surprise increase as deferred maintenance comes due. Conversely, if it consistently goes up by a reasonable amount, it could indicate responsible management.
Negotiate the terms of your CAM. Depending on your market — and your tenant rep can be a guide — you might be able to negotiate capped increases, change the square footage on which it is calculated, or take other measures to reduce your expenses.
Understanding Office Space Area
Office buildings rent space to their tenants. In addition, they provide shared spaces for the public and for their tenants to use. Those shared spaces, like lobbies, atriums, restrooms, and amenity spaces, make the building work better, but they also take money and effort to maintain. The space they take up is space that the landlord can’t put into private suites for his or her tenants. For this reason, most landlords fold some or all of the value of that shared space (sometimes referred to as “common area”) into the rent that they charge their tenants.
Usable vs. Rentable Square Footage
The space within the demising walls of your suite — your space — is referred to as your usable space. So, for instance, if you have a space that measures 30 feet wide and 80 feet long, you would have 2400 usable square feet, since 30 times 80 equals 2400.
When you add your usable square footage to your share of the building’s common areas, you get your rentable square footage. While your tenant representative can help you verify your square footage, if you want to calculate it yourself, you need three pieces of information:
The size of your space (in usable square feet)
The total common area space of the building
Once you have that information, divide the size of your space by the building’s total usable square footage. That will give you a percentage, which represents your pro-rata share of the building’s total usable area. Then, multiply the common area space by your pro-rata share. Add that product to your usable square footage to find your total rentable square feet.
Variations in Commercial Lease Terms
While the commercial real estate industry has “official” definitions for all of these commercial lease terms, in practice, you may find that each landlord’s interpretation of them differs. You might find that one building charges for “CAM, taxes, and insurance” while another’s CAM charges already include taxes and insurance. Buildings can have varying standards for how they measure your space and the common area spaces in the buildings. In addition to those changes, you can find differences in just about every other lease term, as well.
Common Area Maintenance (CAM) charges are some of the most complicated parts of negotiating an office lease. It is frequently challenging to compare them between buildings and they can be highly variable from manager to manager. The best way to ensure that you pay the right CAMs is to enlist the help of a tenant representative when you find your next space and to keep his or her number handy throughout your tenancy.
Originally published on March 10, 2020, by our good friends and colleagues at iOptimizeRealty. The original post can be found HERE.