What are CAM fees on a commercial lease?
If you’ve ever had to negotiate a commercial real estate lease, you’ve likely wondered about the differences between a triple net lease and a lease with CAM charges. These differences are important to the real estate lease framework because they impact the net operating incomes for properties. This article will help business owners make the right decisions regarding triple net Lease and CAM lease structures.
What is a Triple Net Lease?
Often referred to as an NNN lease, the triple net lease is an agreed-upon contract where the tenant leases a property and agrees to pay for virtually all costs related to occupying and maintaining the property. From the taxes to property insurance and grounds maintenance, the lessee is responsible for their own coverage and procurement.
What are CAM charges?
CAM, or Common Area Maintenance charges, are fees added to the lease that cover the aforementioned costs of occupation and maintenance related to the property. These charges are typically determined by the landlord and are specific to the lease and load factor. They are commonly agreed upon by the tenant prior to occupying the facility.
Why Most Leases Fall Under the Triple Net Category
A triple net lease is the most common type of commercial lease. The standards of maintenance vary from lease to lease, but because it omits charges associated with maintenance and upkeep, a triple net lease typically has a lower base rent value than other lease forms. The lease rate includes the base value of the rented square footage without additional fees and charges that would otherwise be included.
Because the cost of maintenance can vary significantly based on building age, location, climate, etc., triple net leases usually include an agreed-upon maintenance cost cap. The cost cap provision is written to include coverage for maintenance purposes only, not capital improvements to the facility. For example, if the HVAC goes out and is in need of full replacement, a lessee is not expected to pay the cost for replacement. That falls on the landlord. However, if an A/C condenser unit to your portion of the building gets clogged, the lessee would be responsible for paying for the maintenance.
Despite these potential liabilities, the triple net lease still makes long-term financial sense due to lower, recurring rents. However, it’s important to factor in anticipated maintenance costs and lease rate before signing on the dotted line. The building’s repair history, age, and overall environment are worth considering in the lease negotiation stage.
When to Sign a Lease with CAM fees
If the concept of trying to negotiate the intricacies of your NNN lease is puzzling, consider a managed property that offers Common Area Maintenance. CAM fees are an upfront way of packaging maintenance fees into your monthly rent. The fees may cover exterior improvements such as landscaping and lawn care, window washing, snow removal, pesticide application, parking lot and sidewalk improvements, exterior security coverage, and various other tenant improvement amenities. CAM fees can also cover interior maintenance needs such as bathroom cleaning and supply stocking, shared conference room cleaning and maintenance, elevator operation and permitting, and in some cases, utility costs like water, sewer, electric, phone, and internet. Most importantly, the CAM fee structured agreement adds a level of convenience to major appliance outages. For example, should the condenser unit fail and the A/C goes out on a hot summer day, the building owner would service the HVAC system, saving you the time, money, and frustration of finding a repair service.
How are CAM Charges Configured?
CAM charges vary from tenant to tenant. Most agreements are defined by the total square footage occupied of a shared space. These charges are often pooled among all the tenants since all tenants benefit from their usage. For example, if your business occupies 1/5th of an office park, and is allotted 1/5th of the available parking, then it would stand to reason that your share of total Common Area Maintenance would be 1/5th of the gross CAM fee.
The distribution of fees is subject to individual negotiation and is highly dependent upon anticipated use. If your business has significantly greater access to common areas, it would be in the best interest of the landlord to charge more than other tenants. All of these nuances should be negotiated with the landlord prior to lease approval.
By design, CAM charges are designed to benefit both the tenant and the landlord. The freedom of not worrying about insect removal, snow plowing, and elevator inspection gives tenants the freedom to focus on their businesses fully. For the landlord, CAM fees allow for a consistent maintenance schedule and consistent billing for such services since they are included in lease terms and not subject to a case-by-case invoice process.
What is the Best Option for My Commercial Lease Needs?
Each case differs, but the question often boils down to what type of lease rate are you willing to pay and what kinds of services you expect to need? If your business is less customer-facing and would benefit more from a lower lease burden, a NNN lease may be perfect for you. However, if your business is one where customers interact with you in your building, and the reliability of cleanliness and accessibility helps foster good relationships, an adequately vetted CAM fee structure may be your best bet.