A Comprehensive Guide to Common Area Maintenance, a.k.a. CAM Charges
In commercial real estate, there are a lot of terminologies that are required to be understood before getting into a contract. A very common terminology that you have heard of in commercial real estate is common area maintenance (CAM) charges. It is one of the most crucial aspects of the maintenance of the commercial property and has to be paid for by the tenants as per the agreement.
In this post, you are going to understand a few of the very crucial elements of common area maintenance. It includes details of CAM expenses, how to calculate them, the expenses that are included in it and also the negotiations. So, read the further given details carefully to have complete insight into the common area maintenance charges.
CAM Charges – Explained!
Common area maintenance charges are referred to the expenses that the owner may incur on maintaining as well as managing the common areas. There are various common areas in a property which is shared by all the tenants and visitors, including lobbies, elevators, hallway and parking lot. Typically, these charges are divided among the tenants of the property based on the proportionate they take on a lease in the commercial space.
Calculation of CAM Charges
Calculation of the CAM charges is based on the lease agreement between the tenants and landlords. Some of the common methods used for the calculation of these charges are given below.
Pro Rata Share
In this method, the tenants divide the common area maintenance charges as per the share they take in the leasable area of the property. For instance, if one tenant occupies 20% of the total area, he’s going to be liable to pay 20% of the total common area maintenance charges.
According to some lease agreements, all the tenants are required to pay an equal share of common area maintenance charges. The charges are calculated regardless of the area that is taken by any tenant in a commercial property. This is most suitable in smaller properties having few tenants.
Base Year Method
Under this method, the common area maintenance expenses for the first year are paid by all the tenants, and it is referred to as the base amount. In the forthcoming years, tenants will pay the difference between actual common area maintenance charges and the base amount. It makes it easier for the tenants to calculate predictable costs in the initial year.
Common area maintenance charges typically include various type of expenses which relates to the maintenance and operation of the common areas. If you come, and expenses included in the CAM charges are listed below.
Maintenance and Repairs
These charges basically include routine maintenance, repair of the common areas and cleaning. The areas included hallways, landscaping, snow removal, elevator maintenance and many more like this.
The cost of utilities that are required to be placed in the common areas, including electricity, water and gas also listed under common area maintenance expenses.
The charges incurred by the landlord for the security of commercial property also come under the common area maintenance charges. It includes the expenses required for security measures, surveillance systems, security personnel and also the Access control systems.
Insurance of the property that comes under the common area is also listed under common area maintenance charges. It ensures that the owners are capable of covering the expenses for potential damages and liabilities that occurred from any object or property in the common area.
Property management service charges and the associated expenses, including administrative costs, legal fees, and accounting, are also included in the common area maintenance charges.
Common Area Amenities
In case there are amenities included in the properties, like a fitness center, shared kitchen, and conference rooms, the cost associated with these types of amenities is also included in the common area maintenance charges.
While signing a contract of lease for a commercial property, tenants get an opportunity to discuss and negotiate the terms and conditions for common area maintenance charges.
While signing an agreement, make sure to read the agreement and see if it clearly defines all the expenses that you will be paying for common area maintenance. Make sure to avoid any misunderstanding So that you do not have to pay for any unexpected costs.
Additionally, It is your right to negotiate for the annual increase in the common area maintenance charges. You can discuss with the landlords to exclude or limit any expenses that may not be relevant to the business you are going to run on the property.